Constellation Brands (STZ) 3 Oct 24 2025 Q2 Earnings call transcript

In the latest earnings call, Constellation Brands, a leading beverage alcohol company, reported a solid performance in the second quarter of fiscal year 2025. Despite the impact of ongoing macroeconomic headwinds, the company maintained its market-leading position in the beverage alcohol industry and delivered strong financial results.

Market Leadership and Outperformance

Constellation Brands held the number one spot for both dollar sales growth and share gains within all beverage alcohol categories in Circana tracked channels. This achievement demonstrates the company's consumer-centric strategy and effective brand building, even amid challenging market conditions. The company's Beer business continued to lead the industry in dollar sales growth and share gains, underscoring its resilience and market dominance.

Strong Financial Performance and Margin Expansion

The company achieved significant margin expansion in its Beer business, driven by disciplined operational and financial management. This margin expansion was further bolstered by cost savings and operational efficiency initiatives, enabling incremental marketing investments in the company's largest beer brands. These investments are expected to drive further growth and enhance the company's market position.

Capital Allocation Priorities and Shareholder Returns

Constellation Brands continued to prioritize its capital allocation strategy, achieving a net leverage ratio of 2.9, slightly below its target of approximately 3x. The company also returned nearly $250 million of cash to shareholders through share repurchases in the second quarter, bringing the total year-to-date cash returns to approximately $450 million. This strong cash generation and shareholder returns underscore the company's commitment to delivering value to its investors.

Beer Business Performance and Outlook

The Beer business delivered strong financial performance in the second quarter, with net sales and operating income growth of nearly 6% and 13%, respectively. This performance was primarily driven by solid volume growth, favorable pricing, and disciplined cost management. The company's largest brands, including Modelo Especial and Corona Extra, continued to perform well, with depletions and dollar sales growth outpacing the industry. Looking ahead, Constellation Brands expects its Beer business to deliver net sales growth of 6% to 8%, operating income growth of 11% to 12%, and an operating margin of approximately 39% in fiscal '25.

Wine and Spirits Business Challenges and Improvements

The Wine and Spirits business faced challenges in the second quarter, primarily due to incremental category headwinds, particularly in the lower-priced segments. However, the company remains focused on advancing operational and commercial execution initiatives to improve the performance of its largest brands. Encouragingly, some green shoots have emerged in the Wine and Spirits business, particularly in the higher-end wine brands. Looking ahead, Constellation Brands expects the Wine and Spirits business to deliver net sales and operating income declines of 4% to 6% and 16% to 18%, respectively, for the full year.

Conclusion

Constellation Brands' strong performance in the second quarter of fiscal year 2025, amid challenging macroeconomic conditions, highlights the company's resilience and market leadership. The company's focus on consumer-centric strategies, effective brand building, and disciplined financial management have enabled it to outperform the total beverage industry and deliver strong financial results. Looking ahead, Constellation Brands remains committed to its capital allocation priorities, with a focus on growth and value creation for its shareholders.