Two months after reporting a down Q1, Constellation Brands downgraded its guidance for fiscal year 2026, according to a press release issued today.
Projected net sales growth for Constellation’s beer division (Modelo, Corona, Pacifico, Victoria) has been shifted to -4% to -2%, down from flat to +3%. Projected beer operating income sank from growth (flat to +2%) to -9% to -7%, due to “impact from lower volumes, operating deleveraging and additional tariffs.”
Constellation has been weathering the twin storms of industry-wide slowing beer sales and drastic changes in spending and shopping behavior among the Hispanic community, a major consumer base for the country’s largest importer of Mexican beer. Those latter shifts are largely in response to immigration-related raids and arrests by U.S. Immigration and Customs Enforcement (ICE) as directed by the Trump administration.
Constellation leadership acknowledged the headwinds during its Q1 earnings call in July, but reiterated confidence in its full-year outlook at the time. However, accelerated declines in high-end beer have led the company to reevaluate, according to the latest release.
“We continue to navigate a challenging macroeconomic environment that has dampened consumer demand and led to more volatile consumer purchasing behavior since our first quarter of fiscal 2026,” CEO Bill Newlands said in the release. “Over the last several months, high-end beer buy rates decelerated sequentially, as both trip frequency and spend per trip declined.
“Notably, high-end beer buy rate declines for Hispanic consumers were more pronounced than general market declines, which has an outsized impact on our beer business compared to the broader beer category,” he continued.
Constellation’s portfolio has been insulated from the industry’s tumultuous past several years, recording growth in dollar sales and volume as its peers declined. However, the company’s portfolio has slipped in dollars (-0.9%) and volume (-2.9%) at multi-outlet grocery, mass retail and convenience stores (MULO+C) year-to-date (YTD) through August 10, according to market research firm Circana.
Constellation is the industry’s second-largest vendor by dollar sales ($5.393 billion YTD, per Circana, which only includes off-premise data; 19.73% share) and third-largest by volume (141.3 million cases YTD; 16.01% share).
“Despite the challenging operating environment, through July of fiscal 2026 we grew volume share in 49 of 50 states,” Newlands said. “In Circana channels, our beer business remained the top dollar share gainer in the total U.S. beer category with a 0.4 point increase.”
Constellation is projecting an imbalance in its shipments (sales to wholesaler) and depletions (sales to retailers) during Q1, CFO Garth Hankinson said in the release.
“We expect inventory rebalancing at the distributor level to reflect softer consumer trends, and to occur earlier than is typical for our beer business,” he said. “As a result, we expect the change in shipments to trail the change in depletions in the second quarter by 6 to 7 points, and for shipment volume to generally align with depletion volume for the second half of the fiscal year.”
Other changes to the company’s fiscal guidance include declines in operating cash flow ($2.5 to $2.6 billion, down from $2.7 to $2.8 billion) and free cash flow ($1.3 to $1.4 billion, down from $1.5 to $1.6 billion).
Enterprise organic net sales growth has been downgraded from +1% to -2%, to now -6% to -4% due to “incremental macroeconomic headwinds affecting consumer demand.” Projections of reported enterprise operating income growth remain positive, downgraded to +666% to +686%, down from +742% to +760%. Comparable enterprise operating income decline has accelerated from -3% to -1%, to now -9% to -7%.
Constellation expects to save $40 million due to “lower compensation and benefits expense,” with corporate expenses now projected at $225 million.
The company’s reported tax rate has increased from 15%, to 18% due to “U.S. tax law changes and shifts in taxable income base,” and its comparable tax rate has increased +1%, to 19% due to “shifts in taxable income base.”
Newlands and Hankinson will discuss the company’s performance in a fireside chat during the 2025 Barclays Global Consumer Staples Conference, scheduled for this afternoon. The company is slated to report its Q2 earnings on October 1, followed by a conference call with investors and analysts on October 2.
Wall Street has reacted negatively to the lowered guidance, with Constellation’s stock (STZ) down around $11 to $150 a share as of press time. The share price is close to Constellation’s 52-week low of $149.36 and down around $111 from its 52-week high of $261.06.