The Modelo and Corona brewer beat quarterly estimates and kept its full-year profit outlook below Wall Street's. Shares fell nearly 5% in early trading and then turned higher.
Constellation Brands sold more beer to its distributors last quarter. Its distributors sold less to stores and bars. That six-point gap sits at the center of a quarter that started the day as a disappointment and ended it in the green.
For its fiscal second quarter, which ended , Constellation reported net sales of $2.633 billion, up 6% from a year earlier and above the roughly $2.54 billion analysts expected. Comparable earnings, which exclude certain items, were $3.74 a share, 19 cents above the $3.55 consensus. Earnings under generally accepted accounting principles were $3.32 a share, up 25%.
Shipments and depletions
Beer shipments, the cases Constellation sells to its distributors, rose 5.5% to 123.9 million. Depletions, the cases distributors sell on to retailers, fell 0.6%. The company said distributors rebuilt inventory during the quarter and that their stock on hand remains below its historical average. It attributed the softer depletions to off-premise activity around the World Cup in June and July coming in below expectations.
By brand, Modelo Especial depletions fell about 2% and Corona Extra about 5%. Pacifico rose about 19%, Victoria about 15% and Modelo Chelada about 5%.
Beer net sales rose 5% to $2.474 billion and beer operating income rose 1% to $964.2 million. The beer operating margin narrowed 1.6 percentage points to 39.0%.
Wine and spirits
The smaller wine and spirits business grew. Net sales rose 17% to $159.4 million, depletions rose 10.2% and operating income was $6.1 million, against a loss of $19.8 million a year earlier. Chief Executive Nick Fink has argued that the wine industry's oversupply is easing. "Going forward this thing has kind of found bottom," he said.
The outlook
Constellation reaffirmed its fiscal 2027 forecast for comparable earnings of $11.20 to $11.90 a share. The $11.55 midpoint is 16 cents below the $11.71 analysts expected. It raised its outlook for reported earnings to $11.85 to $12.55 a share and kept its free cash flow target of $1.6 billion to $1.7 billion. For beer, it still expects net sales between a 1% decline and a 1% gain, with an operating margin of 37% to 38%.
The second-quarter beer margin of 39.0% sits above that full-year range, which implies lower margins for the rest of the year if the guidance holds.
The company also agreed to buy SpikedAde, a ready-to-drink brand, for $75 million at closing and up to $278 million in contingent payments over five years, outside its outlook. It has repurchased $530 million of stock this fiscal year.
The trading
The shares fell to $110.47 in early trading Wednesday, down 4.7%, and opened at $111.20, the day's low. By about 2:10 p.m. Eastern they were at $117.84, up 1.9% from Tuesday's close and about 6.7% above the early low.
Two interpretations
One reading is that the company is executing. It beat on sales and earnings, gained share with Pacifico and Victoria, turned wine profitable and reaffirmed cash flow, and the market moved past the guidance headline once trading began.
Another reading is that the quarter's growth came from restocking rather than consumer demand. Shipments outpaced depletions by about six points, the two largest brands lost volume at retail, and full-year guidance implies a weaker second half.
What would separate them
Third-quarter depletions for Modelo Especial and Corona Extra are the key figure. If distributor inventories are now rebuilt, shipments should move closer to depletions. A beer margin that holds near 39% would put pressure on the conservative full-year range.