The Corona and Modelo brewer topped second-quarter estimates and held its full-year profit outlook, but shipments outran consumer demand by about six points and beer margins narrowed. The stock fell nearly 5% after hours.
Constellation Brands delivered a quarter that beat on nearly every headline line. Investors focused on the gap between what the company sold to distributors and what those distributors sold to consumers.
For the fiscal second quarter ended , net sales rose 6% to $2.633 billion, ahead of the $2.539 billion analysts expected. Comparable earnings per share, which exclude certain items, rose 3% to $3.74, above the $3.55 consensus. Reported earnings were $3.32 a share, up 25%.
The beer business tells the story. Shipments rose 5.5% to 123.9 million cases, but depletions, the measure of what distributors sell through to retailers, slipped 0.6%. That difference of about six percentage points indicates distributors were rebuilding inventory rather than responding to stronger consumer demand. The company attributed the softer depletions to weaker-than-expected off-premise activity around the World Cup in June and July.
Brand trends diverged. Modelo Especial depletions fell about 2% and Corona Extra about 5%, while Pacifico rose about 19% and Victoria about 15%. Beer net sales rose 5% to $2.474 billion and operating income gained 1% to $964.2 million, but the operating margin narrowed 160 basis points to 39.0% on higher marketing and administrative spending.
Wine and spirits, a long-running drag, improved. Net sales rose 17% to $159.4 million, and the unit posted operating income of $6.1 million, compared with a $19.8 million loss a year earlier.
A held forecast after a beat
Constellation reaffirmed its fiscal 2027 comparable EPS range of $11.20 to $11.90 and updated its reported EPS outlook to $11.85 to $12.55. It expects beer net sales between a 1% decline and a 1% gain, a beer operating margin of 37% to 38%, operating cash flow of $2.4 billion to $2.5 billion, capital spending of about $800 million and free cash flow of $1.6 billion to $1.7 billion.
The guidance carries an implication the headline does not. Holding the full-year comparable range after a second-quarter beat means the company expects a softer second half. The margin guide makes the point more directly: a 39.0% beer margin in the second quarter against a 37% to 38% full-year target leaves room for margins to slip below that range in the back half.
Chief Executive Nicholas Fink said the company's brands "continued to resonate with consumers." Constellation repurchased $530 million of stock through September and declared a quarterly dividend of $1.03. It also announced the purchase of SpikedAde, a ready-to-drink brand.
Shares, which closed up 2.29% at $115.91 before the report, traded at $110.47 in extended hours early Wednesday, down 4.7%.
What to watch
Management's call Wednesday morning should address September depletion trends. A return to positive depletions would support the shipment numbers; another negative month would suggest the second-quarter beat borrowed from future quarters. PepsiCo reports Thursday, offering another read on consumer staples demand.