Constellation Brands posts higher profit as Modelo and Corona volumes keep sliding

Constellation Brands, the brewer and vintner behind Modelo Especial, Corona Extra and a fast-growing wine and spirits portfolio, reported higher quarterly profit and reaffirmed its full-year earnings outlook late Tuesday, even as sales volumes for its two best-known beer brands kept shrinking. The results, disclosed in a filing with securities regulators after markets closed, describe a business growing its top line and profit per share largely through pricing, cost control and share buybacks rather than through more beer sold.

For the fiscal second quarter ended Aug. 31, net sales rose 6 percent to $2.63 billion and reported earnings per share climbed 25 percent to $3.32, up from $2.65 a year earlier, according to the company's earnings release. On a comparable basis, which strips out one-time items, earnings per share rose 3 percent to $3.74. Operating income fell 8 percent to $805 million, as heavier marketing spending outpaced gains in gross profit. Net income attributable to the company rose 21 percent to $565.8 million. Constellation had told investors last month, in a notice setting the reporting date, that it would post the figures after the close on Oct. 6 and hold a call the following morning.

Beer volumes keep falling, even as Constellation gains share

The company's beer division, which also makes Pacifico and Victoria and accounts for the bulk of its profit, posted net sales growth of 5 percent and operating income growth of 1 percent. But depletions — a measure of how much beer is actually leaving distributor warehouses for stores and bars — fell 0.6 percent, with Modelo Especial down roughly 2 percent and Corona Extra down roughly 5 percent. Those declines were partly offset by Pacifico, up about 19 percent, Victoria, up about 15 percent, and the Modelo Chelada lineup, up about 5 percent.

Even with flagship brands losing ground, Constellation said its beer business was the top dollar-and-volume share gainer in the United States beer category tracked by the research firm Circana, with five of the fifteen fastest-growing brands in the category. Beer operating margin slipped 1.6 percentage points to 39 percent, which the company attributed to higher marketing and overhead spending that outweighed lower tariff costs and better fixed-cost absorption.

Wine and spirits swing back to profit

The smaller wine and spirits division, built around labels such as Kim Crawford, Robert Mondavi Winery and the craft tequila brand Mi Campo, returned to an operating profit of $6.1 million, after an operating loss of $19.8 million in the same quarter last year. Net sales in that division rose 17 percent and depletions climbed 10 percent, which Constellation said outpaced the broader wine and spirits category. The company credited the swing to savings from earlier restructuring and, notably, to "recoveries of U.S. tariffs" paid on imported product.

Days after the quarter closed, Constellation acquired SpikedAde, a small spirits-based ready-to-drink brand, for $75 million upfront plus as much as $278 million in contingent payments over five years tied to its future performance — a bet on a fast-growing category of canned cocktails that has drawn interest across the drinks industry.

Tariffs, consumer anxiety and a new chief executive

Tuesday's update lands against a backdrop that has weighed on Constellation for roughly two years. Because Modelo, Corona, Pacifico and Victoria are all brewed in Mexico, the company has repeatedly cited U.S. tariffs on imported goods as a drag on costs, while also flagging softer spending among its beer-drinking customer base, which it has said is roughly half Hispanic. Those pressures contributed to successive guidance cuts over the past two fiscal years. This quarter brought a measure of relief on both fronts: tariff expenses eased, and full-year guidance was held steady rather than cut again.

The results were also the first full quarterly report overseen by Nicholas Fink, who became president and chief executive on April 13, succeeding Bill Newlands, who had led the company since 2019. Constellation's board disclosed the succession plan to regulators in February, and the trade press reported at the time that Newlands would retire that spring. Fink, a Constellation board member since 2021, previously ran Fortune Brands Innovations and held senior roles at Suntory Global Spirits.

• Net sales: $2.63 billion, up 6 percent
• Reported EPS: $3.32, up 25 percent; comparable EPS: $3.74, up 3 percent
• Beer depletions: down 0.6 percent; Wine and Spirits depletions: up 10.2 percent
• Shares repurchased this fiscal year: $530 million; quarterly dividend: $1.03 a share

Who is affected, and what comes next

The quarter's cash returns matter most directly to shareholders: Constellation has bought back $530 million of stock since the fiscal year began in March and declared a quarterly dividend of $1.03 a share, up a cent from a year ago. Retailers and distributors that depend on Constellation's beer volumes to fill shelf space face a more mixed picture, with overall category share rising even as the two brands that anchor it keep losing drinkers. Employees are affected too: the company again pointed to "optimization and restructuring initiatives" as a source of savings in the wine and spirits unit.

In remarks included with the earnings release, Fink struck a note of cautious momentum rather than celebration.

"During the second quarter, our portfolio of iconic brands continued to resonate with consumers. We have sharpened our execution and increased investment across the business, and are beginning to see early returns through accelerating dollar and volume share gains in both our Beer and Wine & Spirits businesses relative to the first quarter. As a result, we were the #1 dollar share gainer in beverage alcohol."

Chief Financial Officer Garth Hankinson said the company had returned more than $800 million to shareholders through buybacks and dividends in the first half of the fiscal year while holding its target leverage ratio near 3.0 times earnings. Constellation's board and management are scheduled to discuss the results on a conference call Wednesday morning, hosted on the company's investor relations site, where analysts are expected to press Fink on whether the deceleration in Modelo Especial and Corona Extra depletions is stabilizing or merely moderating heading into the winter holiday season, historically one of the beer business's strongest stretches. The company reaffirmed its comparable earnings outlook for the fiscal year of $11.20 to $11.90 a share and raised its reported earnings outlook to $11.85 to $12.55 — up from $11.50 to $12.20 as of the prior quarter — a contrast with the pattern of the past two years, when guidance was repeatedly trimmed as the year progressed.