GuruFocus -
- Beer Business Net Sales Growth: 4% to 7% expected for fiscal '25.
- Beer Business Operating Income Growth: 9% to 12% expected for fiscal '25.
- Beer Business Operating Margin: Approximately 39% expected for fiscal '25.
- Comparable EPS: $3.25 for Q3 fiscal '25.
- Enterprise Net Sales Growth: 2% to 5% expected for fiscal '25.
- Enterprise Operating Income Growth: 6% to 9% expected for fiscal '25.
- Wine and Spirits Net Sales Decline: 5% to 8% expected for fiscal '25.
- Wine and Spirits Operating Income Decline: 17% to 19% expected for fiscal '25.
- Free Cash Flow: $1.6 billion to $1.8 billion expected for fiscal '25.
- Net Leverage Ratio: 2.9 times in Q3 fiscal '25.
- Shareholder Returns: $220 million in share repurchases and over $180 million in dividends in Q3 fiscal '25.
- Marketing Expense for Beer Business: Approximately 8.5% of net sales expected for fiscal '25.
- Interest Expense: $410 million expected for fiscal '25.
- Comparable Effective Tax Rate: Approximately 18.5% expected for fiscal '25.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Constellation Brands Inc (NYSE:STZ) reported growth in consumer demand for its beer portfolio, with depletions growing by 3.2% in Q3, an acceleration from the previous quarter.
- The company achieved dollar sales growth outpacing the total CPG sector, maintaining its position as a CPG growth leader for nearly 12 years.
- Modelo Especial continued to be a top share gainer in US tracked channels, with a significant growth runway ahead in terms of awareness, distribution, and household penetration.
- Constellation Brands Inc (NYSE:STZ) maintained a strong capital allocation strategy, returning nearly $220 million to shareholders through share repurchases and over $180 million in dividends in Q3.
- The company reported a higher proportion of dollar sales from new legal drinking age consumers, particularly 21 to 24-year-olds, indicating strong brand appeal among younger demographics.
- Constellation Brands Inc (NYSE:STZ) faced softer consumer demand due to macroeconomic headwinds, impacting the overall growth rate of its beer business.
- The company adjusted its fiscal '25 beer business net sales growth outlook to 4% to 7%, reflecting uncertainty in consumer spending behaviors.
- Wine and spirits shipments declined by 16% year over year, driven by ongoing consumer demand headwinds and retailer inventory destocking.
- The company faced competitive pricing pressures in the high-end light beer segment, particularly affecting large pack formats.
- Constellation Brands Inc (NYSE:STZ) reported a decline in operating income for its wine and spirits business, with net sales and operating income expected to decline by 5% to 8% and 17% to 19%, respectively, for fiscal '25.
A: William Newlands, CEO, explained that the near-term consumer weakness is longer than anticipated but not structural. Factors like increased unemployment in certain states and value-seeking behavior among consumers are impacting demand. However, alcohol's share of consumer spending remains consistent, and they expect to emerge from this trough soon.
Q: How do you view capital allocation, especially regarding CapEx for new capacity amid the slowdown?
A: William Newlands, CEO, stated that their expansions are modular, allowing flexibility to advance or delay projects. They continue to prioritize share buybacks, with $1.9 billion authorized for repurchases, reflecting a focus on returning capital to shareholders.
Q: Why did you widen the beer net sales growth guidance range with only two months left in the fiscal year?
A: William Newlands, CEO, noted that the range reflects potential risks like unemployment and tariffs, as well as opportunities if macroeconomic conditions improve. The volatility in consumer behavior warranted a broader range to account for these uncertainties.
Q: What are the challenges and adjustments needed in the wine and spirits business?
A: William Newlands, CEO, acknowledged ongoing challenges, particularly in the lower-end wine segment. They are focusing on higher-end brands like Meiomi and Kim Crawford, which showed growth, and divesting lower-end brands like SVEDKA to align with market trends.
Q: Can you discuss the beer category's health and what might drive its recovery?
A: William Newlands, CEO, highlighted that while the beer category faces challenges, Constellation Brands has consistently outperformed it. They see growth potential in brands like Modelo and Pacifico and are expanding distribution and exploring new opportunities like non-alcoholic options.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.