2 Falling Stocks Could Mean an Ugly Earnings Season Ahead

Stocks returned to their downward path on Thursday, giving back their gains from the previous session. Fears about economic conditions reared up again, with somewhat favorable data making market participants concerned that the Federal Reserve might keep pushing interest rates to higher levels. Losses for the S&P 500 (^GSPC -0.58%), Nasdaq Composite (^IXIC -1.15%), and Dow Jones Industrial Average (^DJI -0.12%) all came in between 1% and 1.5%.

Data source: Yahoo! Finance.

Earnings season won't start in earnest until next week, but a few companies released results that didn't stand up to inspection from shareholders. Even though not all of their numbers were bad, both Walgreens Boots Alliance (WBA -0.06%) and Constellation Brands (STZ -0.18%) saw their stocks fall sharply. That's a hint of what earnings season could bring to companies that disappoint even slightly with their business performance.

Walgreens stock doesn't look healthy

Shares of Walgreens Boots Alliance finished the day down 6%. The drugstore chain giant reported fiscal first-quarter results for the period ending Nov. 30 that showed the impact of weakening economic conditions on its business.

Walgreens' quarterly numbers were generally weaker. Sales were down 1.5% year over year to $33.4 billion, although after adjusting for the strength of the U.S. dollar, constant-currency revenue would have been 3.2% higher. However, Walgreens posted a massive loss, and even after accounting for one-time impacts, adjusted earnings of $1.16 per share were down 31% from year-ago levels. Investors had expected Walgreens' results to include the $6.5 billion charge related to settlements of opioid litigation and related matters, but it was still a sizable hit to the income statement.

Shareholders didn't even seem happy about Walgreens' boosted guidance. The drugstore chain still believes it will earn between $4.45 and $4.65 per share for the fiscal year, as falling profits from declines in COVID-19 product sales offset strong growth in its core business. Yet the company boosted its sales guidance to a range of $133.5 billion to $137.5 billion, in part because of its acquisition of Summit Health.

Walgreens is making broader efforts to expand its healthcare business to go beyond its emphasis on pharmacy services. That could pay off in the long run, but it might take time for Walgreens to see the benefits in its financial statements.

Constellation Brands takes a tumble

In the beer and spirits industry, Constellation Brands saw its stock drop 10% after releasing its fiscal third-quarter results for the period ending Nov. 30. Despite some signs of strength in the business, Constellation wasn't able to convince investors that good times are here again.

Constellation's sales came in at $2.44 billion, up 5% from year-ago levels. However, weakness on the bottom line caused an 11% drop in net income to $525 million. That sent adjusted earnings down to $2.83 per share, and that figure was worse than some of those following the stock had anticipated.

Constellation's various businesses had disparate performance. The beer segment saw increases in sales and unit volume, with Modelo Especial and Modelo Chelada standing out in its product line. However, shipments of wine and spirits were down year over year, and despite higher prices, overall sales and operating income dropped from where they were in the same quarter last year. Moreover, Constellation's holdings in marijuana producer Canopy Growth added to losses.

Worries about consumer behavior seem to have weighed on both Constellation and Walgreens after their earnings reports. That could be a troubling sign if the same thing happens to major consumer giants when they report in the weeks to come.