Jim Cramer's Take on Constellation: Why He's Cautious, But Not Closing the Door

Jim Cramer's take on Constellation Brands boils down to a simple, cautious message: "Too soon for me, but I don't think you're crazy if you want to start a small position." That quote captures the exact tension for an investor. He's not ready to buy, but he also won't call you foolish for dipping a toe in.

Let's break down his reasoning into plain business terms. The stock is down 37% in 2025, which makes it look cheaper than a year ago. Back then, it traded at a rich 20 times earnings. Now, the price-to-earnings ratio has dropped to about 12.21. In simple terms, you're paying less for each dollar of profit the company is expected to make. That's a classic value signal.

Then there's the dividend. The yield is decent at 2.66%. But here's the key point Cramer makes: that yield isn't because the company raised its dividend payments. It's because the stock price fell. The payout per share stayed the same, but the share price dropped, so the yield-the return on your cash investment-went up. It's a math trick, not a sign of management strength.

So why the caution? Cramer's not ignoring the business. He notes the core beer business, which makes up about 90% of sales, is still struggling with lower volumes. That's the real engine, and it's not firing on all cylinders yet. He sees stabilizing signs, like shipments matching customer demand, but he wants to see actual volume growth before getting fully bullish. The expectations are low, the price is low, but the fundamental business needs to show it can climb back up. That's the setup he's watching.

The Business Reality: A Beat Amidst a Decline

The numbers from the third quarter tell a story of two different worlds. On the surface, the company delivered a clear win. It reported adjusted profit of $3.06 per share, beating analyst estimates. That's the headline beat Cramer is reacting to. But look past the headline, and the underlying business is still in a fight.

The problem is the core beer engine. It makes up about 90% of sales, and there, the story is one of volume loss. Beer sales declined 1% during the quarter, driven by lower shipment volumes. That's an improvement from the prior quarter's 7% drop, which is a positive sign. But it's still a decline. The company is selling fewer cases of Corona and Modelo, even as it raises prices to cover new costs like tariffs.

This creates a classic business tension. You need higher prices to cover rising costs, but raising prices too much can scare away customers and make volume growth even harder. It's like a restaurant owner trying to keep the lights on by charging more for the same meal, while the foot traffic keeps dwindling. The company is managing this tightrope walk, but the volume numbers show the market is still challenging.

The financial results reflect this struggle. While the adjusted profit beat estimates, net sales fell 10% to $2.22 billion. That's a significant drop, even if it was slightly better than the expected decline. The company is fighting to protect its bottom line with pricing and cost control, but it's not yet able to grow its top line. The stabilizing shipments Cramer noted are a step in the right direction, but they haven't turned the volume trend around yet. For now, the beat is a sign of good management in a tough environment, not a sign the business is back on solid ground.

The New Cost Headwind: The Aluminum Tariff

The biggest new worry for Constellation isn't just weak beer sales-it's a direct hit to its profit margins from a government policy. The company is now facing a 50% U.S. tariff on aluminum imports, a cost that landed like a surprise tax on the cans that hold its popular Mexican beers. This isn't a minor expense; it's a major new headwind that management says will pressure the company's cost structure through the remainder of the fiscal year.

To understand the impact, think of it like this: the company pays for aluminum cans, which are a key part of its packaging. That cost has been driven up sharply by the tariff. For Constellation, which uses aluminum cans for about 41% of its Mexican beer packaging, the math is straightforward. The company estimated this new tariff would hit it with a total cost of $20 million for the 2026 fiscal year alone. That's cash that comes straight out of the operating profit, squeezing the margin.

The challenge is a classic business squeeze. The company needs to cover this higher cost, but it can't raise prices too much without risking more volume loss. The beer business is already struggling, with brands like Modelo and Corona seeing depletion declines. Raising prices to pass on the tariff cost could push more customers away, making the volume problem worse. It's like a restaurant owner who has to pay more for the same ingredients but can't raise menu prices without losing customers to a competitor.

This is why Cramer's caution makes sense. He's watching a business that is already fighting to stabilize its core volume. Now, it has to manage this new, significant trade cost without losing ground. The company's ability to pass these costs through to consumers without hurting sales is the critical test. For now, the tariff is a tangible risk that could slow any recovery, making the stock's low price and dividend yield less compelling until the company shows it can handle this new cost without sacrificing market share.

Catalysts and What to Watch: Testing the Thesis

So what happens next? The coming months will test whether Constellation's recent quarter was a one-time beat or the start of a real turnaround. The next major event is the company's full-year outlook and fourth-quarter results, due in a few weeks. That report will show if the improvement seen in the third quarter-where beer volume declines slowed-is a trend or just a lucky quarter.

The single most important thing to watch is the volume trend in the beer business. The company's core brands, like Modelo and Corona, are still seeing depletion declines. That means stores are selling fewer cases than they used to. For the thesis to work, those numbers need to stop falling and start rising. If volume continues to drop, it suggests the fundamental problem isn't solved, and the business is still losing ground. The stabilizing shipments Cramer noted are a positive sign, but they need to turn into actual growth.

Then there's the aluminum tariff. The company estimated it would cost $20 million for the year, and management says it will pressure margins through the remainder of the fiscal year. The key question is how well the company can manage this hit. Can it raise prices enough to cover the cost without scaring away more customers? Or will it have to absorb the loss, squeezing its profit margin further? This is a tangible risk that could slow any recovery.

In short, the setup is clear. The stock is cheap, the dividend yield looks attractive, and the core business is stabilizing. But the business needs to show it can climb back up. Watch for volume trends to improve, and watch how the company handles the new aluminum cost. If those two things go right, Cramer's cautious stance might look too conservative. If they don't, the low price may not be enough to make up for a business that's still in decline.