Constellation Brands adjusted outlook for fiscal '25 shows growth, particularly in their beer portfolio.

From Nasdaq: 2025-01-10 18:00:12

Constellation Brands held their Q3 fiscal year 2025 earnings call on January 10, 2025, at 10:30 a.m. ET. CEO Bill Newlands and CFO Garth Hankinson discussed the company’s performance and outlook for the fiscal year. Despite macroeconomic challenges affecting consumer spending, the company’s beer portfolio showed growth in demand. They adjusted their fiscal ’25 beer business net sales growth to be 4% to 7% and operating income growth to be 9% to 12%. Despite challenges, Constellation Brands remains optimistic about their performance and future growth opportunities.

The company’s beer business continues to outperform the total beverage industry in dollar sales growth. They are executing key initiatives in distribution and innovation, with significant progress in securing points of distribution for core brands. Challenges in the high-end light beer segment and Chelada brands are being addressed through marketing and distribution strategies. Constellation Brands also saw growth in demand from new legal drinking age consumers, indicating a positive trend for the future. In the third quarter, our beer business maintained growth despite economic challenges, with Modelo Especial and Pacifico leading in depletion increases and market share gains. Despite a decline in wine and spirits shipments, our fine wine portfolio saw depletion growth, and our craft spirits portfolio grew by approximately 9%. We anticipate continued growth through strategic pricing and marketing actions, distributor partnerships, and cost-saving initiatives. While the consumer backdrop remains soft, we are confident in delivering a strong fiscal year performance. These results are aligned with our focus on higher-end brands and operational efficiencies. Garth Hankinson, CFO of the company, reported that enterprise net sales remained steady in the third quarter of fiscal ’25. Beer business saw a 3% growth in net sales, driven by increased shipment volume and pricing. Depletions for beer grew 3.2%, with on-premise depletions seeing nearly 5% growth. Off-premise depletions grew nearly 3%, with independent retailers experiencing lower growth rates due to elevated unemployment rates. The wine and spirits business saw a decline of over 14% in net sales, primarily due to a volume decline of over 16%. Operating income for the wine and spirits business declined by $32 million. Marketing expenses for the wine and spirits segment were over 11% of net sales, above the medium-term target due to investments in larger brands. Other SG&A expenses were over 14%, in line with targets. Fiscal ’25 operating income for wine and spirits is expected to decline 17-19%. Corporate expenses decreased by 3% to $63 million. Interest expense remained flat at $104 million. Free cash flow for fiscal ’25 was $1.6 billion, a 13% increase. Brewery expansions have been shifted to fiscal ’26. Consumer spending trends are being closely monitored. Unemployment rates and consumer spending are affecting beer depletion rates, but overall alcohol remains consistent in consumer spending.

The completion of brewery expansions has been shifted to fiscal ’26, with $3 billion expected to be deployed in capex between fiscal ’25 and fiscal ’28. Emphasis is placed on investing in brands, maintaining cost discipline, and strong cash generation. Consumer behavior, including subdued spending and value-seeking trends, is being closely watched. Unemployment rates and consumer spending are affecting beer depletion rates, but overall alcohol remains consistent in consumer spending. The company maintains a focus on executing against its strategy and stated priorities. Newlands — President and Chief Executive Officer

Yeah. I think — a couple of things. I mean, I think you have to recognize that when you look at the wine and spirits business, there’s been a lot of moving parts. So, when we talked about some of the things that — some of the significant events that we’ve had, we’ve had some really positive things happen in our business with the continued rapid growth of brands like Kim Crawford and Meiomi in the U.S.

But on the other hand, some of the more traditional brands in our business have been under a bit of pressure. So — and I think it’s a very competitive category, very competitive environment.

So — and I think you have to recognize that — you have to put that — you have to put all those things into perspective. And you have to recognize that we’re — that most of our big brands are growing.

And — so — and I think — and you have to recognize that we are — we’re very focused on not only growing our big brands, but also growing our small brands, and we’re — and that’s — and — and we’re — and we’re focused on that.

Analysts are concerned about the state of the beer category, which has been struggling. Despite this, the company has consistently outperformed the category and the CPG sector for over a decade, with brands like Modelo showing strong growth potential. The CEO remains optimistic about the company’s future outlook. Inventory levels are consistent, with potential adjustments due to order disruptions. The company expects to continue gaining shelf space in 2025 after significant gains in the past year. There are concerns about potential tariffs impacting the company’s operating margin and volume growth projections. In the recent earnings call, Constellation Brands clarified that beer volume growth projection is 4% to 7% plus, not negative. The company is monitoring the tariff situation and adjusting its approach accordingly. Beer margins are expected to remain in the 39% to 40% range, with potential headwinds and tailwinds affecting margins. Constellation Brands plans to selectively increase prices by 1% to 2% in certain markets and pack sizes to maintain consistency and avoid negative impacts. Shipments are expected to be slightly below depletions in the fourth quarter. The recent financial call by Constellation Brands discussed the gap between shipments and depletions, with expectations for them to align on a full-year basis. The company noted limitations in Circana data, which only captures about 50% of sales activity. There was also discussion on modular expansions in Mexico, with Veracruz expected to come online in 18 months with a production capacity of 3 million hectoliters. Despite softer consumer backdrop, the beer business outperformed the total beverage industry. Constellation Brands also returned $220 million to shareholders in Q3 through buybacks. The company has adjusted its growth outlook for fiscal ’25 but still expects double-digit growth in EPS. 1. The stock market reached record highs today, with the Dow Jones Industrial Average closing at 30,000 points for the first time ever. This milestone comes as investors remain optimistic about the potential for a COVID-19 vaccine and a smooth transition of power in the White House.

2. In other news, a new study has found that wearing a face mask significantly reduces the spread of coronavirus. Researchers discovered that communities with mask mandates had a 30% lower infection rate compared to those without mandates. This information reinforces the importance of wearing masks to help slow the spread of the virus.

3. On the international front, tensions are rising between Iran and Israel after the assassination of a top Iranian nuclear scientist. Iran has accused Israel of orchestrating the attack, which threatens to escalate conflict in the region. The incident has raised concerns about the stability of the Middle East and the potential for further violence.



Read more at Nasdaq: Constellation Brands (STZ) Q3 2025 Earnings Call Transcript