Q3 2025 Earnings Summary
- Constellation Brands' beer business has consistently outperformed the overall beer category and the CPG sector for over a decade, with key brands like Modelo having significant growth potential due to low awareness and household penetration.
- The company's strategic focus on higher-end Wine and Spirits brands is showing positive results, with premium brands like Meiomi and Kim Crawford increasing depletions by over 7%, and the craft spirits portfolio growing by 9%.
- Constellation Brands is effectively returning capital to shareholders through significant share repurchases, with approximately $670 million returned year-to-date, and a remaining $1.9 billion share repurchase authorization, indicating strong commitment to shareholder value.
- Decline in the U.S. beer category with acknowledgment from management that the category isn't healthy, which may impact Constellation Brands' ability to maintain growth in their beer segment. As CEO William Newlands stated: "the beer category hasn't been particularly healthy".
- Ongoing underperformance and negative outlook in the Wine and Spirits division, especially at the lower end which is described as "not healthy", indicating challenges in turning around this segment. Analyst Lauren Lieberman noted an "ongoing negative revision cycle" for this business , to which management agreed that they "continue to be hit very hard at the lower end of the business".
- Increased risks and uncertainties such as potential tariffs, macroeconomic headwinds, higher unemployment, and increased volatility have led to wider-than-normal guidance ranges, signaling less visibility into future performance and potential downside risk. As William Newlands mentioned, "we decided on this particular range... include things like unemployment, potential tariffs... There's been a lot of volatility". Garth Hankinson acknowledged that "we acknowledge that the range right now is a little bit wider than we typically are given where we are in the calendar year".
| Metric | YoY Change | Reason |
|---|---|---|
Wine & Spirits Revenue | -14% (to $431.4 million) | This decline was driven by lower branded shipment volumes and reduced non-branded sales, partly due to continued softness in mainstream wine demand and the impact of prior divestitures, though partially offset by premiumization trends ( ). |
Net Income | +24% (to $629.1 million) | The improvement reflects strength in the Beer segment and lower investment-related losses, building on last year's challenges that included impairment charges. Continued cost management and a favorable pricing environment further supported net income growth ( ). |
EPS (Basic) | +23% (to $3.38) | EPS increased in tandem with stronger net income and reduced noncash charges compared to prior periods. The company also benefited from pricing initiatives and shipment volume gains while maintaining disciplined spending ( ). |
Capital Expenditures | -31% (to $228.4 million) | CapEx decreased due to the timing of major investments in brewery expansions and a reduction in large-scale project spending relative to the prior year. Looking ahead, the company still anticipates further investments in its Beer business to drive capacity growth ( ). |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales Growth (Enterprise) | FY 2025 | 4% to 6% | 2% to 5% | lowered |
Comparable Operating Income Growth | FY 2025 | 8% to 9% | 6% to 9% | lowered |
Comparable EPS | FY 2025 | $13.60 to $13.80 | $13.40 to $13.80 | lowered |
Net Sales Growth (Beer) | FY 2025 | 6% to 8% | 4% to 7% | lowered |
Operating Income Growth (Beer) | FY 2025 | 11% to 12% | 9% to 12% | lowered |
Operating Margin (Beer) | FY 2025 | Approximately 39% | Approximately 39% | no change |
Net Sales Decline (Wine & Spirits) | FY 2025 | 4% to 6% | 5% to 8% | lowered |
Operating Income Decline (Wine & Spirits) | FY 2025 | 16% to 18% | 17% to 19% | lowered |
Corporate Expense | FY 2025 | no prior guidance | $250 million | no prior guidance |
Interest Expense | FY 2025 | $430 million | $410 million | lowered |
Effective Tax Rate | FY 2025 | 18.5% | 18.5% | no change |
Operating Cash Flow | FY 2025 | no prior guidance | $2.9B to $3.1B | no prior guidance |
Free Cash Flow | FY 2025 | $1.4B to $1.5B | $1.6B to $1.8B | raised |
Capital Expenditures | FY 2025–FY 2028 | no prior guidance | $3B | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Net Sales Growth (yoy) | Q3 2025 vs. Q3 2024 | 4–6% | -0.3% from $2,470.9MTo $2,463.8M | Missed |
Beer Net Sales Growth (yoy) | Q3 2025 vs. Q3 2024 | 6–8% | 3.2% from $1,968.5MTo $2,032.4M | Missed |
Wine & Spirits Net Sales (yoy) | Q3 2025 vs. Q3 2024 | -4% to -6% | -14.1% from $502.4MTo $431.4M | Missed |
Operating Income Growth (yoy) | Q3 2025 vs. Q3 2024 | 8–9% | -0.49% from $796.9MTo $793M | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Continued strong beer business performance with new concerns about category health | **Q2 2025: ~6% net sales growth, 2.4% depletion growth. Q1 2025: ~6.4% depletion growth. Q4 2024: 7.5% depletion growth. Category concerns emerged in Q2. ** | **Remains strong with 3.2% depletions growth; net sales +3%. Management notes category is “not particularly healthy” but remains confident in outperformance. ** | Consistently positive performance; caution over broader category persists. |
Underperformance in Wine and Spirits and a shift toward premiumization | **Q2 2025: 12% net sales decline; Q1 2025: 7% net sales decline; Q4 2024: ~8% decline. Premiumization strategy discussed throughout. ** | **Shipments fell 16%; net sales down 14%, operating income down 25%. Focus on premium brands like Meiomi, Kim Crawford. ** | Continued weakness; premiumization remains central to turnaround. |
Wider guidance ranges driven by macroeconomic uncertainties | **Not specifically highlighted in Q2, Q1, or Q4; prior mentions only note general macro headwinds without emphasizing wider ranges. ** | **Explicitly cited as broader than usual; macro risks (unemployment, tariffs, subdued spending) drive uncertainty. ** | New emphasis on macro-driven volatility in ranges. |
Ongoing share repurchase programs signaling shareholder return focus | **Q2 2025: $249M in share buybacks. Q1 2025: $200M. Q4 2024: $900M in FY24 returns. ** | **Repurchased ~$220M in Q3, ~$670M year-to-date. Total ~$1.2B returned including dividends. ** | Continued commitment to return capital; robust buyback activity. |
Goodwill impairment highlighting challenges in the Wine and Spirits segment | **Q2 2025 included a $2.25B noncash impairment, reflecting segment challenges. No mention in Q1 or Q4 2024. ** | No mention of further impairment in Q3. | Singular Q2 event; no recurring discussion post-impairment. |
Reduced mention of new product innovations like Corona Sunbrew and Modelo Aguas Frescas | **Q2 2025: Short Corona Sunbrew mention, none for Aguas Frescas. Q1 2025: Both mentioned, expansions noted. Q4 2024: Early rollout details. ** | **Corona Sunbrew only briefly referenced; Modelo Aguas Frescas not discussed. ** | Focus decreased this quarter; less detail on new innovations. |
Evolving sentiment around the beer segment from exclusively bullish to more cautious | **Shift in Q2 2025 as macro headwinds slowed depletion growth; Q1 2025 still bullish on brand resilience. ** | **More cautious near-term due to subdued consumer spending, though long-term outlook remains optimistic. ** | Growing caution, though brand fundamentals stay strong. |
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Beer Depletion Softness
Q: Is beer weakness short-term or long-term? Impact on growth guidance?
A: Management believes the near-term softness in beer is not structural or long-term. Factors include higher unemployment in 31 states and spending declines among consumers earning under $50,000. Alcohol's share of the consumer basket remains consistent, and they expect to emerge from this trough soon. -
Capital Allocation and CapEx
Q: How will you adjust CapEx amid slowdown? Prioritize buybacks?
A: Expansions are modular and can be advanced or delayed based on market conditions. They continue significant share repurchases, with $220 million bought back this quarter and $1.9 billion remaining authorized. Veracruz is on schedule, with the first module of 3 million hectoliters, but future capacity expansions can be adjusted. Capital allocation remains disciplined, with a bias toward returning capital to shareholders. -
Beer Category Decline
Q: Given category decline, how will you achieve growth targets?
A: Despite the beer category's weakness, they have consistently outperformed it. Modelo has significant growth potential with increasing awareness and household penetration. Pacifico and Victoria are showing strong double-digit growth. They have outpaced CPG for over a decade and expect to continue doing so. -
Tariff Risk and Volumes
Q: How would tariffs affect volume and margin priorities?
A: They have various scenarios but it's too early to speculate. They will adjust their approach depending on developments. Beer volume guidance remains at 4% to 7% growth, acknowledging macroeconomic risks but optimistic due to positive unemployment data. -
Beer Margins Outlook
Q: What's the outlook for beer margins considering pricing, commodities, FX?
A: They maintain beer margin expectations at 39% to 40%. Tailwinds include volume growth, cost savings, and pricing actions; headwinds are normal inflation, increased depreciation from expansions, and capacity absorption. Margins could vary yearly but expect to stay within this range. -
Wine and Spirits Challenges
Q: What's behind Wine and Spirits underperformance?
A: The turnaround is taking 9 to 12 months as planned. Positive signs in Q3 with Meiomi and Kim Crawford up 7%, and craft spirits up 9%. The lower end of the business is weak; focusing on higher-end brands like SVEDKA is part of their strategy, and they remain optimistic for continued improvement. -
Pricing Strategy
Q: Will you promote more aggressively in light beer segment?
A: They assess pricing by SKU and market, believing 1% to 2% pricing increases remain appropriate. They avoid big swings, aiming for consumer-friendly consistency, as during COVID. -
Inventories and Shelf Space
Q: What's the status of beer inventories and shelf space expectations?
A: Inventories are consistent with historical levels, with slightly more on hand to mitigate potential order disruptions. After strong double-digit shelf space gains last year, they expect more normal gains in 2025, continuing to outperform and earn shelf presence. -
Shipments vs. Depletions
Q: Will shipments and depletions remain aligned? Gap with data?
A: They expect shipments and depletions to be largely aligned for the full year. Circana data captures only about 50% of sales; they acknowledge volatility in the gap but suggest questions about it be directed to Circana.