Constellation Brands Beat Earnings, But Beer Demand Is Still a Problem

Key Points

• Constellation Brands beat second-quarter revenue and earnings estimates, but weak forward guidance suggests consumers are cutting back on alcohol purchases.
• Constellation Brands maintained its comparable earnings outlook and organic sales range, although management said improving September trends could support the high end of the range.
• STZ stock trades near 10-year lows and about 10 times earnings guidance, leaving investors divided over whether it is a bargain or a value trap.

Constellation Brands NASDAQ: STZ delivered an earnings report that showed a solid beat on the top and bottom lines. However, the company's weak forward guidance confirms that consumers are cutting back on discretionary purchases such as alcoholic beverages. The stock briefly rallied toward $120 on Wednesday morning before giving back most of the gain.

First, the good news. The company behind the Modelo and Corona brands delivered strong headline numbers in its second-quarter earnings report for its fiscal year 2027 (FY2027). Revenue of $2.63 billion topped estimates of $2.54 billion and was 6% higher year over year. That's a meaningful turnaround from the first quarter, when net sales fell 3.3% year over year.

The bottom line numbers were equally strong. Adjusted earnings per share (EPS) of $3.74 comfortably beat estimates of $3.55 and were 3% higher year over year.

Beat the Quarter, But Maintained Its Guidance

But it was the company's forward guidance that took the buzz out of the report. The company is calling for an organic net sales decline of approximately 1%. That's the bottom of the range of negative 1% to positive 1% the company offered after the first quarter. It also implies a softer second half, since sales just grew 6% in the second quarter.

Constellation maintained its FY2027 adjusted EPS outlook in a range between $11.20 and $11.90. But investors are paying more attention to the midpoint of $11.55, which is below the consensus target of $11.72. In other words, management beat the quarter but didn't raise the year. For a stock looking for a reason to rally, that wasn't enough.

Beer Continues to Be the Big Winner

Beer remains Constellation's biggest business. Net sales in that segment rose 5% to $2.47 billion, helped by a 5.5% jump in shipments. Beer now accounts for about 94% of total net sales.

That shipment number requires context. A year ago, distributors were working down inventory. Constellation said at the time that shipments would trail depletions by six to seven points in that quarter. Some of this quarter's growth is simply lapping that easy comparison.

Modelo stayed the top beer brand by dollar sales, and Pacifico climbed into the top 10. Beer operating margin slipped 160 basis points to 39%, as higher marketing and overhead costs outweighed lower tariff expenses. That's still above the 38% beer margin the company posted for all of fiscal year 2026 (FY2026).

The wine and spirits business grew faster on a percentage basis. Net sales there rose 17% to $159 million, with depletions up 10.2%. But at about 6% of total sales, the segment isn't large enough to move the needle. It's also a smaller, higher-end portfolio since the company sold its mainstream wine brands in 2025.

Is It the Economy or Something More?

Looking at this earnings report in a vacuum, investors could make a case that the weak guidance from Constellation Brands is a statement on the economy. That would make STZ a clear buy-the-dip opportunity.

The problem with that thinking is that nothing seems normal as it relates to Constellation Brands. The stock is trading at 10-year lows. Some of that can be explained by the unsustainable boost the stock received in 2020 and 2021.

That doesn't explain, however, the undeniable trend that many consumers are consuming less alcohol as part of a wellness trend that may, or may not, include GLP-1 drugs. It also doesn't account for changing tastes in alcoholic beverages. Consumers have more variety, and they seem eager to shift their beverage preferences.

Management has offered a different explanation. The company has said its Hispanic consumers remain interested in beer but are drinking less often due to socioeconomic concerns. That's a cyclical argument. The wellness trend is structural. Right now, the market is pricing in the structural view.

What the Chart Says About STZ Stock

The technical picture reflects that uncertainty. STZ has posted a series of lower highs since peaking near $168 in April. The stock sits about 8% below its 50-day simple moving average (SMA) of roughly $126. That average is still sloping lower.

There is one early sign of life. The MACD line just crossed above its signal line, a classic bullish signal. However, the crossover happened well below the zero line. In a downtrend, these signals often mark a pause rather than a reversal. A close above the 50-day SMA would carry far more weight.

Bargain or Value Trap?

At around $116, STZ trades for about 10 times the midpoint of its full-year EPS guidance. That's a steep discount to its historical valuation. The dividend yield is also elevated at roughly 3.5%.

That's the tension at the heart of STZ. The fundamentals show a company still growing beer sales and earning over $11 per share. The perception is that its core customer is drinking less and may not come back.

Until Constellation shows depletion growth that isn't flattered by easy comparisons, perception is likely to win. Income-focused investors may find the yield worth a starter position. Everyone else may want the chart to confirm a bottom first