Constellation Brands beats estimates, but shares fall as Modelo and Corona keep slipping

Constellation Brands shipped more beer to distributors in its latest quarter than a year earlier, but fewer cases of Modelo Especial and Corona Extra made it into shoppers' carts, and investors focused on that second number.

The importer behind Modelo Especial, the No. 1 beer brand by dollar sales in the U.S., reported comparable earnings of $3.74 a share for its fiscal second quarter, which ended Aug. 31, up 3% from a year earlier. Net sales rose 6% to $2.63 billion. Both beat the roughly $3.55 a share and $2.54 billion that analysts had expected, according to consensus figures cited by 24/7 Wall St. and StockStory. Earnings under standard accounting rose 25% to $3.32 a share, helped by a smaller tax bill.

Shares fell about 4.6% to $110.49 in after-hours trading as of 7:04 p.m. ET, according to Nasdaq data, after rising 2.25% to $115.86 in the regular session. That put the stock below the bottom of its 52-week trading range, $110.60.

Shipments up, demand down

Beer, about 94% of the company's sales, is where the strain showed. Shipments to distributors rose 5.5% and beer net sales rose 5% to $2.47 billion. But depletions, the cases distributors moved on to stores, bars and restaurants and a closer read on what drinkers are buying, fell 0.6%. Modelo Especial depletions dropped about 2% and Corona Extra about 5%, while Pacifico grew about 19% and Victoria about 15%.

Constellation said distributors bought slightly more than they sold to rebuild inventories that ran low at the end of its last fiscal year, and that those stocks are still below historical averages. It blamed the dip in depletions on store sales around the World Cup that came in below industry expectations in June and July. Store and other off-premise depletions, 89% of the total, fell 1.5%, while bar and restaurant volumes grew 6.6%. In prepared remarks, management said August showed "a temporary deceleration in depletion trends" as economic and consumer pressures hit store sales, and that Texas and Florida lagged among its five biggest states while California and New York did better.

Prices were roughly flat after accounting for the mix of products sold. The company said it has been selective about raising prices market by market "given the softer consumer backdrop."

Spending more to defend the brands

Beer operating income rose just 1% to $964.2 million, and the beer operating margin narrowed by 1.6 percentage points to 39%, as heavier marketing and other overhead outweighed lower tariff costs. Marketing ran at about 10% of beer net sales. Across the company, selling, general and administrative expenses rose 23% to $538.2 million, and Constellation booked $49.8 million of asset impairment charges, so operating income under standard accounting fell 8% to $805 million. Corporate expense jumped 62% to $74 million, mostly on higher pay and incentive compensation.

The much smaller wine and spirits business, reshaped by last year's sale of mainstream wine brands, increased net sales 17% to $159.4 million and swung to a $6.1 million operating profit from a $19.8 million loss, helped by recovered U.S. tariff costs and cost cuts. Kim Crawford wine and Mi Campo tequila drove that segment's depletion growth, separate from the beer brands.

Forecast held, with a tougher second half

Constellation kept its forecast for comparable earnings of $11.20 to $11.90 a share in fiscal 2027, which ends in February, compared with $11.82 in fiscal 2026. The $11.55 midpoint is below the roughly $11.71 analysts had expected, according to the 24/7 Wall St. figures. The company raised its forecast for earnings under standard accounting to $11.85 to $12.55 a share, from $11.50 to $12.20 in late June, while lowering the tax rate it expects on that basis to about 12% from about 17%.

It also left its beer forecast unchanged at a range of a 1% decline to a 1% gain in net sales. Because beer sales rose 4% in the first half, that range implies second-half beer sales roughly 2.5% to 7% lower than a year earlier, by TickerGrove's calculation from the company's reported figures. Management expects the beer operating margin to fall to 34.5% to 35.5% in the second half, with marketing above 11% of net sales in the third quarter to pay for Major League Baseball and college football programs, and overhead spread over seasonally smaller shipments.

The company has bought back $530 million of its stock this fiscal year through September and declared a quarterly dividend of $1.03 a share. It also said it had bought SpikedAde, a spirit-based ready-to-drink brand, for $75 million upfront plus up to $278 million more over five years depending on how the brand performs, and that the deal does not change its outlook.

A new chief executive's second report

The results are the second set under Nicholas Fink, a former Suntory Global Spirits executive who ran Fortune Brands Innovations before succeeding Bill Newlands as chief executive in April. Fink said the company had "sharpened our execution and increased investment across the business" and was beginning to see early returns in faster market-share gains. Constellation said its beer business picked up more than 0.8 percentage point of share in U.S. stores tracked by the research firm Circana during the quarter, a faster gain than in the first quarter. Executives are scheduled to discuss the results on a call at 8 a.m. ET on Wednesday.