Constellation’s Sales Rise 3% Despite Continuing Challenges In Wine And Spirits

Constellation Brands has posted sales up 3% to $2.9 billion for its fiscal second quarter ended in August, propelled by a 6% increase for its beer unit, partially offset by continued challenges in its wine and spirits division. Operating income grew 13% to $1.1 billion on a comparable basis, but fell by roughly the same amount on a reported basis, as the company took a $2.25 billion writedown on its wine and spirits business.

Constellation’s beer business saw depletions rise 2.4% for the quarter, with sales reaching $2.5 billion, “driven by ongoing demand growth for Modelo Especial of approximately 5%, Pacifico of approximately 23%, and the Modelo Chelada brands of approximately 2%, while Corona Extra declined approximately 3%,” according to the company. With growth continuing for its Mexican brews, Constellation is set to pour $3 billion into its operations south of the border through fiscal 2028, including with a third brewery site in Veracruz. The company’s current annual capacity in Mexico is 48 million hectoliters.

According to Impact Databank, Modelo Especial is the third-ranked beer brand in the U.S. by volume at 14.2 million barrels last year, while Corona Extra, Modelo Chelada, Pacifico, and Corona Familiar also rank within the top 25. Excepting Corona Extra, all of the above were named Impact “Hot Brands” earlier this year.

On the wine and spirits side, Constellation noted that “the business continues to face challenging market conditions, primarily in the U.S. wholesale channel across most price segments in the wine category.” Shipments for the quarter fell 10% to 5.5 million cases, with depletions faring worse at -18%, resulting in net sales and operating income declines of 12% to $389 million and 13% to $71 million respectively.

Still, Constellation flagged craft spirits depletion growth of 1.3% for the quarter, “primarily driven by increases in Mi Campo Tequila of 23% and Nelson’s Green Brier whiskey of 15%.” While full-year sales for the wine and spirits business are expected to decrease by 4%-6%, Constellation said “commercial and operational actions are expected to drive sequential net sales and operating income improvements” in the next two quarters.

Last month, Constellation warned of an impending writedown on the wine and spirits unit owing to continuing headwinds. In today’s announcement, that non-cash goodwill impairment loss was pegged at $2.25 billion.

For its full fiscal year, Constellation expects total sales to come in up 4% to 6%, with operating income to rise 8% to 9% on a comparable basis but fall 63% to 62% on a reported basis.

President and CEO Bill Newlands said “the current macroeconomic backdrop has weighed on demand for beverage alcohol—and for consumer packaged goods more broadly,” but emphasized that Constellation‘s beer business continues to outperform and is well-positioned for further gains. —Daniel Marsteller

Tagged : Constellation Brands, Corona, Modelo, Pacifico

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