Constellation Brands' (STZ -0.64%) wine and spirits business didn't put up the best results in the fiscal second quarter of 2024. And yet for investors interested in the company, there was still some notable good news. While beer is grabbing the most attention (and for good reason), before you give up on this company's wine and spirits, it's important to dig into the numbers just a little bit.
Constellation's second-quarter numbers were mixed
Constellation's second-quarter results benefited from sales problems hitting Anheuser-Busch InBev's Bud Light. Indeed, Modelo Especial was a particular standout, with Constellation happily reporting that it was "the No. 1 brand share gainer and the No. 1 brand in the entire U.S. beer category in dollar sales." Overall, the company's beer business saw sales rise an impressive 12% year over year.
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That strength pushed the company's overall sales higher by 7%. That's a far cry from 12% from the beer business, which means that sales were fairly weak elsewhere in the portfolio. This is where the worrying 14% sales decline from wine and spirits comes in.
Luckily for the consumer staples company, wine and spirits only make up around 15% or so of sales. Still, that's a material piece of the overall figure, and investors shouldn't take the troubles in the wine and spirits business lightly.
Indeed, while Constellation Brands is benefiting from strong results in its beer business today, that's not a guarantee of future performance. Wine, spirits, and beer tend to rotate around when it comes to customer sentiment. Right now, beer is in, but that could change. That said, there are some good things going on in the wine and spirits business that are being hidden by the division's top-level performance figures.
Constellation is going premium
From a big-picture perspective, Constellation Brands is working to high-grade its portfolio. The reason is fairly simple: Lower-end wine demand has been falling, as higher-end wine demand has been expanding. The same is true in the beer space.
Spirits are a bit different, with lower end hard drinks seeing increased demand even while higher end spirits are growing faster. But the main story is that all categories are seeing stronger results among premium offerings.
The alcohol company is doing exactly what'd you expect in this situation -- it is attempting to shift its business toward higher-end brands. CEO Bill Newlands noted during Constellation Brands' fiscal second-quarter 2024 earnings conference call that:
Our wine and spirits business continues to make headway on its vision to become a bold and innovative, higher-end market leader. In the second quarter, our largest premium wine brands, Meiomi and Kim Crawford, outperformed their corresponding category segments in U.S. tracked channels. They both increased their respective share in the overall line category. Our largest fine wine and craft spirits brands, the Prisoner Wine Company and our Mi CAMPO tequila brand, also outperformed their corresponding luxury wine and higher-end spirits category segments.
That juxtaposes against the company's mainstream brands, which "continued to face lower demand." So the story in the company's wine and spirits business looks pretty ugly overall because of the company's material exposure to mainstream brands with weak sales trends.
But just beneath the surface is the strong performance of its premium offerings, an area on which the company is placing an increasing emphasis.
Constellation is achieving success
There are different factors to consider here.
First, Constellation Brands' beer business is doing well right now, but that's at least partly driven by problems impacting a competitor. That's good for Constellation, but it may not last. The wine and spirits business is, on the whole, not doing so well.
But, underneath that, the effort to shift upscale appears to be working well. As you dig into this company's financial results, remember that the top-level stories here aren't necessarily telling the full story.
