Constellation Brands has once again impressed investors by beating Wall Street expectations for its latest quarterly earnings and raising its full-year profit guidance. The drinks giant, known for its powerhouse beer brands Modelo and Corona, reported strong growth in its beer division, although its wine and spirits business continues to face headwinds.
Beer continues to drive growth
For the quarter ending in May, Constellation posted a comparable profit of $3.57 per share, surpassing analysts’ expectations of $3.46. Despite falling just short of revenue forecasts with net sales of $2.66 billion versus the estimated $2.67 billion, the company marked its fourteenth consecutive quarter of growth—largely fuelled by its beer segment.
Demand for beer rose 8.3%, supported by both volume increases and selective pricing. Sales to distributors grew by 7.6%, and the beer business achieved an impressive operating margin of 40.6%, a 260 basis point increase. Modelo Especial, now firmly established as the top-selling beer in the US by dollar value, was a major contributor to this success.
Buoyed by the strong performance, Constellation upgraded its full-year earnings forecast to between $14.63 and $14.93 per share, up from a previous projection of $13.40 to $13.70.
Wine and spirits struggle with consumer slowdown
While the beer business boomed, the company’s wine and spirits division reflected broader industry struggles. Sales in the segment fell 5.1% compared to the same period last year, aligning with a growing trend of American consumers moving away from wine and spirits in favour of beer.
Constellation acknowledged “challenging market conditions,” especially in the US wholesale channel across most wine price points. These difficulties resulted in a 370 basis point drop in the division’s operating margin, down to 15.3%, attributed to both lower volumes and higher production costs.
Despite the downturn, CEO Bill Newlands remained optimistic. “Our wine and spirits business is making good progress against the operational and commercial execution of initiatives to support its trajectory toward this year’s guidance,” he said.
Still, the outlook for the segment remains muted. The company forecasts flat net sales and expects operating income in the division to decline by 9% to 11% over the course of the fiscal year.
Strategic focus remains on core growth drivers
Constellation Brands’ results highlight a growing divergence between its beer and wine/spirits portfolios, a trend echoed by other industry players such as Brown-Forman. With beer continuing to outperform other categories, the company’s strategic focus remains firmly on its Mexican beer brands, where it has maintained strong consumer engagement and pricing power.
The performance of Modelo and Corona continues to underscore the strength of Constellation’s positioning in the US beer market, even as competitors struggle to keep up. This strength has enabled the company to weather softer performance in its other divisions while maintaining investor confidence.
Outlook
Despite challenges in its wine and spirits arm, Constellation Brands is pressing forward with confidence, driven by robust beer demand and operational efficiencies. The company’s increased earnings outlook signals continued momentum in the months ahead, and while diversification in alcohol categories remains a priority, beer remains its undisputed growth engine for now.
As the fiscal year progresses, Constellation’s ability to navigate shifting consumer trends—and potentially revitalize its wine and spirits portfolio—will be closely watched by investors and industry peers alike.