Constellation Brands (STZ 0.67%), a top producer of beer, wine, and spirits, reported mixed fiscal 2025 third-quarter earnings on Friday, Jan. 10. The company reported a Non-GAAP EPS of $3.25, which fell short of the expected $3.31. Revenue of $2.64 billion came in ahead of expectations for $2.53 billion but fell slightly year over year. Adjusted EPS of $3.25 missed expectations of $3.31 and was effectively flat year over year.
Constellation's beer segment displayed robust growth, yet Wine and Spirits faced notable declines, suggesting a challenging quarter overall.
| Metric | Q3 FY 2025 | Analysts' Estimate | Q3 FY 2024 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $3.25 | $3.31 | $3.24 | 0% |
| Revenue | $2.64 billion | $2.53 billion | $2.66 billion | (0.3%) |
| Adj. operating income | $802 million | N/A | $820 million | (2.2%) |
| Net income (GAAP) | $616 million | N/A | $509 million | 21% |
Source: Constellation Brands. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. GAAP = Generally accepted accounting principles.
Business Overview and Current Focus
Constellation Brands is a leading international brewer, winemaker, and liquor producer. Its high-end beer brands like Corona and Modelo generate substantial revenue. The company's Wine and Spirits segment also includes well-known wines and craft spirits. Recently, the business has concentrated on premiumization, aligning its portfolio with high-margin brands to meet changing consumer preferences. Key success factors involve maintaining leadership in the U.S. high-end beer market and expanding production capabilities in Mexico, crucial for sustaining its beer segment growth.
The company has adopted a strategy embracing premiumization, fortified by the divestiture of less profitable brands like SVEDKA and bolstering high-growth premium labels. Operational investments, especially in production capacity in Mexico, remain paramount to its future profitability and market positioning.
Fiscal 2025 Third-Quarter Highlights
The recent quarter saw a continued strong performance by Constellation's Beer segment. Net sales for the segment increased by 3% driven by a 1.6% rise in shipment volumes. However, operating margins contracted by 60 basis points to 37.9%, primarily due to increased marketing investments. Modelo Especial remained a top performer as the No. 1 brand in dollar sales growth across all U.S. beer brands. This leadership reinforces the company's strategic positioning in high-end beer markets.
Conversely, the Wine and Spirits segment struggled, reporting a 14% decline in net sales. Shipment volumes fell by 16.4%, heavily influenced by weak consumer demand and retailer inventory reductions. This further led to a 333 basis point drop in operating margins. Despite these challenges, the strategic shift towards premiumization with brands like Domaine Curry is expected to gradually strengthen future performance.
Material events in the quarter included significant capital investments in Mexican beer operations, expanding production capacity crucial for long-term growth. No changes in dividends were noted, but the focus on optimizing resource allocation remains evident, with a projected $3 billion investment through fiscal 2028.
Looking Ahead
Looking to the future, Constellation Brands revised its fiscal 2025 EPS outlook, now expecting between $3.90 and $4.30 (it had previously forecasted $4.05 to $4.25 a share). This is down significantly from the $9.39 reported in fiscal 2024, mostly to account for the divestiture of some brands. If divested brands were included, the EPS forecast would be $13.40 to $13.80 per share.
The company projects operating cash flow between $2.9 and $3.1 billion, reflecting a strong cash generation outlook. Management will continue emphasizing strategic investments, especially in high-demand beer operations and premium spirits.
Investors should closely monitor Constellation's ability to navigate headwinds in consumer spending, particularly in the Wine and Spirits segment. Expansion efforts in Mexico are critical, as these operations underpin anticipated growth in the high-end beer market. The emphasis remains on premiumization and direct-to-consumer strategies to drive profitability in upcoming quarters.
