Constellation Brands Q2 Earnings Call Highlights

Key Points

• Constellation Brands maintained its fiscal 2027 comparable EPS outlook of $11.20–$11.90 after second-quarter results exceeded expectations, with favorable September trends potentially pushing results toward the high end.
• Beer performance improved meaningfully, supported by healthier distributor inventories, increased marketing investment and stronger brand trends. Pacifico grew about 20% year to date, while Victoria posted mid-teens growth.
• The company repurchased $530 million of stock year to date and has $2.5 billion remaining under its authorization, while continuing selective acquisitions such as SpikedAde and advancing its Veracruz brewery toward an early fiscal 2028 launch.

Constellation Brands NYSE: STZ reiterated its fiscal 2027 outlook after reporting second-quarter results that Chief Executive Officer Nick Fink said exceeded the company’s expectations. The company maintained its comparable earnings-per-share guidance of $11.20 to $11.90 and said it could finish at the high end of that range if favorable September trends continue.

Fink said the company’s beer business accelerated meaningfully from the prior quarter and that Constellation was the top dollar-share gainer in beverage alcohol during the period. He also pointed to marketing-led improvements across the portfolio, healthier distributor inventories and stronger September depletion trends.

“If the positive September trends that we saw continue, we would expect to land at the high end of that range,” Fink said. He added that reaching the low end of the guidance range would require “a real reversal in trends” from current conditions.

Inventory Rebuild Nears Normal Levels

A major focus during the first half of the fiscal year was rebuilding beer inventory at distributors after what management characterized as an overcorrection in fiscal 2026. Fink said Constellation entered fiscal 2027 with inventory levels that were too low, testing the lower limits of days on hand and creating supply-chain inefficiencies as the company worked to keep shelves stocked.

The company increased shipments to close distributor order backlogs and reduce the risk of out-of-stocks. Fink said distributor inventories are now in a “great position,” though still below historical averages.

For the full fiscal year, Constellation expects shipments and depletions to track within 99% of one another. Management said the second half should resemble a more typical seasonal pattern after the inventory rebuilding effort in the first half.

Chief Financial Officer Garth Hankinson said the company would have exceeded its expectations for the second quarter even without the elevated shipments associated with the inventory rebuild, supporting management’s confidence in its outlook.

Marketing Investment Supports Portfolio Growth

Fink said Constellation’s increased marketing investments are producing early signs of improvement, particularly for its larger beer brands. He said Corona has benefited from more focused execution, with share stabilizing and shorter-term Circana trends improving relative to longer-term data.

Management described the company’s approach as increasingly granular, emphasizing brand relevance, distribution, pack-price architecture and activation at consumer occasions rather than relying solely on broad awareness campaigns.

Fink said Modelo has stabilized, while the company sees opportunities to build awareness in the middle of the country through programming tied to college football. He also said Pacifico became a top-10 beer brand and is growing at roughly a 20% rate year to date, while Victoria is also posting mid-teens growth.

Constellation expects marketing spending to represent about 10% of net sales in the second half, with spending above 11% of net sales in the third quarter as it supports Major League Baseball and NCAA football programming. Hankinson said the company believes its full-year marketing investment is at a healthy level after likely underspending in recent years.

Fink said the company’s World Cup-related programming demonstrated that sports can serve as a broader engagement platform, even though the event did not meet industry expectations. He said Constellation generated three times more beer market-share gains than the next-best competitor during the event, with 400 basis points of outperformance versus the category.

Margins, Costs and Veracruz

Hankinson said the company expects beer operating margins of 34.5% to 35.5% in the second half, which he described as normal seasonally because the latter half of the year has lower volumes and less fixed-cost absorption. Maintenance capital expenditures are also expected to affect margins during that period.

The company expects selling, general and administrative expenses to be about 7% of sales in the second half, driven in part by short-term incentive compensation comparisons with the prior year. Management also plans to continue supporting brands with marketing investments.

Constellation is progressing on its Veracruz brewery project, which is about 85% complete, according to Hankinson. The company now expects to bring the facility into service in the early part of fiscal 2028. Once operational, Veracruz is expected to create approximately $75 million of annualized depreciation expense, or about a 90-basis-point annualized margin headwind.

Hankinson said Constellation is highly hedged on commodities and currencies for the current fiscal year, generally at or above 90%, while diesel is fully hedged. The company has also added hedges for fiscal 2028 and beyond during periods of market weakness.

Fink said Constellation intends to become more systematic in pursuing cost savings. The company has generated about $600 million in efficiencies since its investor day, he said, but management sees further opportunity through a multiyear continuous-improvement program designed to sustain margins and fund growth investments.

Capital Returns and Selective M&A

Constellation repurchased $530 million of stock year to date and has $2.5 billion remaining under its share-repurchase authorization through fiscal 2028. Hankinson said the company will continue its programmatic approach to buybacks while retaining the flexibility to accelerate repurchases when it sees a disconnect between the share price and intrinsic value.

Management also highlighted its acquisition of SpikedAde as an example of its approach to mergers and acquisitions. Fink said the ready-to-drink brand is expected to approach 2 million cases in calendar 2026 and should contribute to growth next year. He said the deal was completed at a cost in a similar range to developing and launching an organic innovation, but with an existing record of momentum.

While Fink said beer will remain the overwhelming driver of value creation, he said the company has capacity to pursue selected growth spaces outside its core portfolio. Constellation plans to be disciplined in evaluating ready-to-drink opportunities, emphasizing sustainability, differentiated consumer appeal, distribution potential and its ability to support brands through marketing, pricing and innovation.

About Constellation Brands (NYSE:STZ)

Constellation Brands, Inc is a beverage alcohol company that develops, markets and distributes beer, wine and spirits. Its portfolio includes well-known beer brands such as Modelo Especial, Corona Extra, Corona Light and Pacifico, along with wine brands including Robert Mondavi, Kim Crawford, Meiomi, The Prisoner Wine Company and Ruffino.

The company also offers spirits through brands such as Casa Noble tequila and High West whiskey. Constellation's products are sold through retailers, distributors, restaurants and other on-premise locations, with a primary focus on the United States.

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