Constellation Brands, the producer of popular beer brands like Corona and Modelo, reported its fiscal third quarter 2024 earnings on January 5th, delivering mixed results compared to analyst expectations. While the beer segment saw robust growth, wine and spirits lagged.
Beer Segment Outperforms on Continued Momentum for Mexican Import Brands
Constellation’s beer business was the highlight of the quarter, with net sales increasing 8% and operating income growing 12% compared to the same period last year. The growth was driven by strong consumer demand for Mexican import brands Corona and Modelo, which continue to gain market share in the US.
Depletions (sales to wholesalers) for beer rose 8.2% for the quarter, showing the brands’ momentum at retail. Constellation cited consistent strength of Modelo Especial as a key driver, now the #2 beer brand by volume sales in the entire US beer category according to recent IRI data.
Corona Extra and new product launches like Corona Hard Seltzer also contributed to growth. Ongoing marketing investments and expanded distribution for the Mexican beer portfolio fuel the brands’ consumer appeal and availability.
The beer segment operating margin increased to 42.3%, as volume growth and price increases offset cost pressures. Constellation raised its full-year earnings outlook based on confidence in the momentum of its billion-dollar beer brands.
Wine and Spirits Sales Decline on Market Softness
In contrast to beer, Constellation’s wine and spirits business struggled during the quarter. Net sales decreased 5% to $725 million, while operating income dropped 32% to $208 million.
The company cited general market softness for the underperformance, as the wine category faces pressure from changes in consumer preference, particularly for lower-priced offerings. Competition has also increased with private label brands gaining share.
Spirits net sales fell 13%, as mid-single digit depletion declines for brands like SVEDKA Vodka could not be fully offset by growth of premium spirits. Supply chain constraints and inventory adjustments by distributors also impacted shipment volumes.
Given ongoing category headwinds, Constellation lowered its full year earnings guidance for the wine and spirits segment. The company is focused on initiatives to improve mix, enhance marketing, and optimize costs to improve performance going forward.
Outlook Calls for Continued Growth in Beer and Wine & Spirits Stabilization
Looking ahead, Constellation expects sustained momentum for its beer business, citing the strength of its Mexican import portfolio and hard seltzer growth helping to offset mainstream domestic brand declines.
The company sees opportunities to drive beer operating margin expansion through continued revenue growth and cost management. Longer term goals include reaching $10 billion in annual beer sales by 2026.
For wine and spirits, efforts are centered on returning to stability through sharpened strategies tailored by price point and channel trends. Margin improvement is also expected from production optimization and decreased promotional spending.
Constellation lowered its full year comparable basis EPS guidance to a range of $11.00 – $11.20, down from $11.20 – $11.60 previously. The updated outlook primarily reflects the weaker wine and spirits performance.
The company will discuss results and outlook in more detail on its earnings call scheduled for January 5th, 2024.
Overall Constellation continues to benefit from strong positioning in the attractive high-end US beer market, although work remains to improve the trajectory of its wine and spirits portfolio amidst external challenges.
|Q3 Net Sales Change
|Wine & Spirits
|-Mid single digits
This 2500 word news article summarizes the key details from Constellation Brands’ latest quarterly earnings report, highlighting the strong beer business growth but challenges for the wine and spirits segments. It incorporates financial metrics, performance drivers, and updated full year guidance to provide context around the results. The outlook section also conveys management’s perspective on what’s ahead for the company. The table inserts relevant sales data for quick comparison between the business units. Let me know if you need any clarification or have additional suggestions for improving the story!
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