Constellation Brands unveiled today the Q2 financials that showed slowing growth, which led to the company lowering its fiscal year 2025 (FY25) guidance last month.
The company’s beer portfolio, which includes Mexican import brands Modelo, Corona, Pacifico and Victoria, recorded a +4.6% increase in Q2 shipments (sales to wholesalers) and +2.4% increase in depletions year-over-year (YoY). While still in the black, the trends have softened compared to the growth Constellation’s beer division recorded in Q1 (shipments +7.6%, depletions +6.4%).
The latest quarterly growth is on top of high-single-digit growth in Q2 2024, when shipments increased +8.7% and depletions +7.9% YoY in the quarter ending August 31. On-premise depletions also increased +5% YoY, and accounted for 11% of Constellation’s total beer volumes, CFO Garth Hankinson added during the company’s call with investors and analysts.
Constellation’s beer net sales increased +6% YoY, to $2.5 billion, in the latest quarter, while operating income increased +13%, to $1.08 billion. For the first half of FY25, net sales have increased +7%, to $4.8 billion, while operating income increased +14%, to $2 billion.
Constellation credited the slow quarter to an increased unemployment rate disproportionately impacting Hispanic consumers, in turn impacting Constellation’s top five markets, which make up 50% of the company’s beer volume. Constellation president and CEO Bill Newlands also repeated sentiments shared in Q1 that the upcoming U.S. presidential election is causing a decline in consumer spending – a trend that occurs during most election cycles, according to Newlands.
Newlands called the macroeconomic trends “purely a near-term issue” and reiterated that the company does not “see this as any radical change in the long-term perspective on the business.”
Additionally, the quarter had one fewer selling day, which typically affects Constellation’s sales by 0.5-1.5 percentage points, Hankinson said.
Despite softened trends, Constellation continues to outpace the total beer category in Circana-tracked off-premise channels, with dollar sales 5.3 percentage points above category trends, and volume growth 6.2 percentage points above, according to the company’s financial sheet. Constellation’s beer business was also the No.1 dollar share gainer in off-premise channels for the 12th consecutive quarter (+1.1 share points), and was the No. 1 volume share gainer (+1 share point).
Pacifico led percentage growth for Constellation’s beer brands in the quarter, increasing depletions +23% YoY, accelerating growth trends from both the previous quarter (+15% YoY) and Q2 FY24 (+21%). The brand also maintained its status as the fourth largest share gainer of off-premise beer dollar sales.
Modelo Especial remains the No. 1 brand share gainer and No. 1 beer brand by off-premise dollar sales, and recorded a +5% YoY increase in depletions in the quarter. While still leading Constellation’s portfolio, the brand was impacted by softened trends, with less than half the YoY growth it recorded in the previous quarter (+11%).
Constellation also highlighted growth from Modelo Chelada, which increased Q2 depletions +2% YoY. Modelo Chelada Limón y Sal was a top 15 overall dollar share gainer in total beer. The latest growth was below trends compared to both the previous quarter (+40% YoY) and Q2 FY24 (+5%).
Corona recorded a -3% decline in Q2 depletions, but maintained its status as a top five beer brand by dollar sales, and eked out share gain in the quarter. Newlands acknowledged during a fireside chat at Barclays’ Consumer Staples Conference in September that Corona has struggled a bit more than its sibling brands, in part due to its consumers skewing more toward the East, which has had weather issues this year, particularly around major holidays.
“The brand family and what Corona as a brand entity stands for is still very strong, and we think Corona is going to be just fine in the near term,” Newlands said last month. “We don’t expect it to have the same growth profile that Modelo or Pacifico has, but it’s still going to be just fine.”
In the latest earnings call, Newlands added that Corona is “already seeing a pickup” with improved trends in the last four weeks. The brand has also benefited from Corona Sunbrew Citrus Cerveza, a 4.5% ABV offering, that “has done very well in consumer testing in the Northeast,” and will extend to additional markets in 2025.
“We continue to say that Corona is going to be slightly up for the year,” Newlands said. “We still think that’s probably where that will land. And Corona is going to be one of the big benefitees in the increase in the marketing spend that we have in the back half of the year because of our strong cost efficiency initiatives.”
Corona, Modelo, Modelo Chelda and Pacifico will all receive increased marketing spend through the remainder of the fiscal year.
Constellation is maintaining its previously revised FY25 guidance of beer net sales growth between +6% and +8%, with operating income growth between +11% and +12%. Previous guidance had beer growth projections between +7% and +9%.
Total Enterprise Revenue +3%, Wine and Spirits -12%
Constellation’s Q2 net sales of its total enterprise increased +3% YoY, to $2.9 billion, while operating incomes increased +13%.
The company also reported a $1.2 billion operating loss in the quarter, on top of a $2.25 billion impairment charge for its wine and spirits businesses. Constellation previously warned of the non-cash goodwill impairment charge in its September revisement, estimating the charge to between $1.5 billion and $2.5 billion.
Constellation’s wine and spirits business has been a sore spot for the company, and declines continued in the latest quarter. The division’s Q2 shipments declined -9.8% and depletions -17.4% YoY. Net sales declined -12%, to $388.7 million, while operating income declined -13%, to $70.5 million. Hankinson attributed the declines to “ongoing challenges in the wine category, particularly in the U.S. wholesale marketplace due to both weaker consumer demand and retailer inventory destocking.”
Constellation’s revised enterprise net sales guidance for FY25 is now between +4% and +6% (previously +6% to +7%). The company’s wine and spirits division is expected to record full-year net sales declines between -4% and -6%, and operating income declines between -16% and -18%.
Asked if new brand acquisitions may be necessary to help combat Constellation’s wine and spirits declines, Newlands said he does not “perceive us to be acquiring additional properties at this point in time, particularly on the wine side of our business.”
“Frankly, our focus right now is on improving the operational performance of that business,” Newlands continued. “And all the time, energy and efforts are being put against seeing that operational improvement play out in the back half of the year, including engaging more directly and more often with our distributor partners as part of that.”