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CONSTELLATION BRANDS, INC. (STZ)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 net sales were $2.46B (flat YoY), GAAP EPS was $3.39 and comparable EPS was $3.25; beer delivered +3% net sales with operating margin of 37.9% (down 60 bps), while wine & spirits declined −14% with margin at 22.1% .
  • Guidance was prudently lowered for FY25 top line and operating income (beer net sales now 4–7%; wine & spirits −5% to −8%), with comparable EPS trimmed to $13.40–$13.80; simultaneously, operating cash flow and free cash flow targets were raised to $2.9–$3.1B and $1.6–$1.8B, respectively .
  • Management emphasized near‑term consumer softness (value-seeking behavior, pockets of elevated unemployment) but reiterated confidence in beer margin profile (39–40%) and brand momentum (Modelo, Pacifico), while continuing incremental marketing investments and modular capex pacing (Veracruz initial phase late FY26/early FY27) .
  • Capital allocation remained balanced: Q3 buybacks of ~$220M, YTD cash returns >$1.2B, net leverage at ~2.9x comparable; dividend declared at $1.01/share (Class A) .
  • Stock reaction catalysts: lowered growth outlook (near-term caution), offset by stronger cash generation and continued beer outperformance and brand support—watch for tariff headlines and regional labor/unemployment trends per management’s commentary .

What Went Well and What Went Wrong

What Went Well

  • Beer outperformed CPG and beverage alcohol in Circana channels; depletions accelerated sequentially to +3.2% with net sales +3% and continued share gains for Modelo Especial and Pacifico (“59th consecutive quarter of depletion volume growth”) .
  • Strong cost savings and disciplined pricing helped sustain beer profitability; management reaffirmed long-run beer margin target of ~39–40% despite near-term spend increases .
  • Cash generation increased: YTD operating cash flow $2.56B (+9%) and YTD free cash flow $1.63B (+13%); FY25 cash flow guidance raised (OCF $2.9–$3.1B; FCF $1.6–$1.8B) .

Selected quotes:

  • “Subdued spend and value seeking behaviors… supported by our relentless focus on executing… including incremental marketing investments” — CEO Bill Newlands .
  • “We… now expect to deliver annual operating cash flow and free cash flow above our initial targets” — CFO Garth Hankinson .

What Went Wrong

  • Wine & spirits: net sales −14%, operating income −25% and margin −333 bps to 22.1%, driven by weaker consumer demand and retailer destocking; Corona Extra depletions down ~1% amid competitive light-beer pricing .
  • Beer operating margin decreased 60 bps to 37.9%, reflecting higher marketing and depreciation, though partially offset by favorable pricing .
  • FY25 outlook lowered for enterprise/beer growth (beer net sales to 4–7%, beer operating income to 9–12%) and wine & spirits decline widened (−5% to −8% net sales; −17% to −19% operating income) .

Analyst concerns:

  • Tariff policy uncertainty and regional unemployment (e.g., top states, convenience channel sensitivity) could pressure volumes and pricing architecture in the near term .

Financial Results

MetricQ3 FY24Q1 FY25Q2 FY25Q3 FY25
Net Sales ($USD Millions)$2,470.9 $2,661.8 $2,918.9 $2,463.8
Diluted EPS (GAAP) ($)$2.76 $4.78 $(6.59) $3.39
Comparable EPS ($)$3.24 $3.57 $4.32 $3.25
Comparable Operating Income ($MM)$819.8 $924.0 $1,089.8 $802.2
Comparable Operating Margin (%)33.2% 34.7% 37.3% 32.6%

Segment performance:

Segment MetricQ3 FY24Q1 FY25Q2 FY25Q3 FY25
Beer Net Sales ($MM)$1,968.5 $2,272.8 $2,530.2 $2,032.4
Beer Operating Income ($MM)$757.3 $923.0 $1,077.7 $769.9
Beer Operating Margin (%)38.5% 40.6% 42.6% 37.9%
Wine & Spirits Net Sales ($MM)$502.4 $389.0 $388.7 $431.4
Wine & Spirits Operating Income ($MM)$127.6 $59.7 $70.5 $95.2
Wine & Spirits Operating Margin (%)25.4% 15.3% 18.1% 22.1%

KPIs:

KPIQ3 FY24Q1 FY25Q2 FY25Q3 FY25
Beer Shipments (mm 24‑pack 12oz eq.)101.1 115.1 128.6 102.7
Beer Depletions Growth (%)—+6.4% +2.4% +3.2%
Wine & Spirits Shipments (mm 9‑L cases)6.1 5.6 5.5 5.1
YTD Operating Cash Flow ($MM)—$690.5 $1,872.3 $2,557.5
YTD Free Cash Flow ($MM)—$315.2 $1,169.2 $1,626.0

Note: “—” indicates not disclosed in cited documents.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Enterprise Organic Net Sales GrowthFY254–6% 2–5% Lowered
Comparable Operating Income Growth (Enterprise)FY258–9% 6–9% Lowered (low end)
Comparable EPSFY25$13.60–$13.80 $13.40–$13.80 Lowered low end
Reported EPSFY25$4.05–$4.25 $3.90–$4.30 Lowered low end / widened
Beer Net Sales GrowthFY256–8% 4–7% Lowered
Beer Operating Income GrowthFY2511–12% 9–12% Lowered
Wine & Spirits Net Sales (Organic)FY25−4% to −6% −5% to −8% Lowered
Wine & Spirits Operating IncomeFY25−16% to −18% −17% to −19% Lowered
Corporate Expense ($MM)FY25$260 $250 Lowered
Interest Expense, net ($MM)FY25$430 $410 Lowered
Operating Cash Flow ($B)FY25$2.8–$3.0 $2.9–$3.1 Raised
Capital Expenditures ($B)FY25$1.4–$1.5 ~$1.3 Lowered
Free Cash Flow ($B)FY25$1.4–$1.5 $1.6–$1.8 Raised
Tax Rate (Comparable)FY25~18.5% ~18.5% Maintained
Weighted Avg Diluted Shares (mm)FY25~183 ~182.5 Lowered
Dividend per share (Class A)Q3 FY25$1.01 (declared 10/1/24 for Q2) $1.01 (declared 1/8/25 for Q3) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Consumer softness & value-seekingQ2: Macro headwinds, rising unemployment; depletions impact; cautious consumer; incremental marketing planned .Subdued spend persists; sequential uplift in beer depletions; uncertainty on normalization; range widened .Persistent near term; sequential improvement but cautious outlook.
Beer margins & pricingQ2: Margin ~39% for FY25; cost savings, hedging; marketing ramp; pricing +1–2% .Margin profile reiterated at 39–40%; Q3 margin −60 bps on higher marketing/depreciation; pricing algorithm maintained .Stable long-run margin; near-term pressure from spend.
Distribution & innovationQ2: Shelf space gains and marketing push .>50% of targeted 500k incremental points secured; Chelada format expansion; high-end light competition addressed .Advancing distribution and pack architecture.
Capital allocation & leverageQ2: Net leverage ~2.9x; buybacks $249M; capex peak year .Q3 buybacks ~$220M; leverage ~2.9x; modular capex; shift some capacity to FY26; Veracruz initial module (3mm hL) timeline intact .Continued balance; capex timing flexibility.
Wine & spirits portfolioQ1/Q2: Headwinds, green shoots in higher-end brands; craft spirits growth .SVEDKA divestiture completed (announced Dec 3; closing in Jan); continued declines; actions to improve .Portfolio tilt to higher-end; execution ongoing.
Tariffs/macro policy risk—Monitoring tariff risk; approach contingent on policy; unemployment sensitivity in core states .Watch items into FY26.

Management Commentary

  • Bill Newlands (CEO): “Subdued spend and value seeking behaviors… our Beer Business delivered a sequential increase in our depletions growth rate in Q3… given near-term uncertainty… we have prudently lowered our growth outlook…” .
  • Garth Hankinson (CFO): “Operating income grew by 2%, and we had a 60 basis point… decline in operating margin to 37.9%… $40 million benefit from ongoing cost savings… marketing just over 10% of net sales… full year beer operating margin ~39%” .
  • Capex pacing: “We have shifted… start-up of our latest addition at our existing breweries in Mexico from the end of fiscal '25 to fiscal '26… Veracruz initial phase anticipated by late fiscal '26 or early fiscal '27” .
  • Margin philosophy: “We think… 39% to 40% is the right range for our beer margin… tailwinds from volume, savings, pricing vs inflation, depreciation, fixed absorption” .

Q&A Highlights

  • Drivers of beer softness: management sees longer-than-expected near-term macro trough, not structural (unemployment pockets, value-seeking), alcohol’s share of consumer basket consistent .
  • Capital allocation vs capex: modular flexibility enables pacing; $1.9B buyback authorization remains; bias to returning capital as cash flow inflects .
  • Tariff scenario: too early to hypothesize; multiple permutations assessed; volume/pricing balance would depend on policy specifics .
  • Shipments vs depletions: expect alignment for FY25; Q3 shipments below depletions due to planned maintenance; Circana captures ~50% of sales, gap volatility persists .
  • Category and brand dynamics: Corona slightly softer but improving; Pacifico strong; Cheladas facing convenience-channel headwinds; light beer price competitiveness addressed via selective actions .

Estimates Context

  • S&P Global/Capital IQ consensus EPS and revenue estimates for Q3 FY25 could not be retrieved due to data access limitations; therefore, quantified beat/miss vs Street is unavailable at this time. Results vs company guidance and prior periods are presented above .
  • If access becomes available, we will update comparisons and assess whether revisions to FY25 and FY26 Street estimates are warranted.

Key Takeaways for Investors

  • Beer remains the engine: net sales +3%, depletions +3.2%, continued share gains; margin near long-run target despite increased brand support .
  • Guidance reset reflects prudence amid consumer softness; monitor unemployment trends in core states and potential tariff developments for Q4/FY25 sensitivity .
  • Cash generation accelerates; FY25 OCF/FCF raised; expect ongoing return of capital with leverage at ~2.9x and ~$1.9B remaining authorization .
  • Portfolio shaping continues: SVEDKA exit and higher-end focus in wine & spirits, but near-term destocking and demand headwinds weigh on volumes/margins .
  • Near-term trading: expect narrative driven by topline caution vs margin/cash resilience; upside if consumer normalization accelerates; downside if macro/tariff risks materialize .
  • Medium-term thesis: distribution and innovation runway (500k points >50% secured), disciplined pricing (1–2%), cost savings programs underpin durable beer economics .
  • Watch capex timing: modular expansions shifted into FY26; Veracruz initial module remains on track, supporting capacity aligned to demand .

Additional document references:

  • Q3 FY25 8‑K earnings release and supplemental schedules .
  • Q3 FY25 earnings call transcript (prepared remarks and Q&A) .
  • Prior quarters for trend context: Q2 FY25 8‑K and call ; Q1 FY25 8‑K .
  • SVEDKA divestiture press release (Dec 3, 2024) .