STZ’s Beer Business Continues to Outperform

That wraps up our initial coverage of Constellation Brands’ Q1 results. Thank you for stopping by!

Check out management’s earnings call on July 1 at 8 AM ET for more updates.

Despite the earnings beat, management largely stuck with its outlook for fiscal 2027 rather than becoming more aggressive.

Constellation reaffirmed comparable EPS guidance of $11.20 to $11.90 while maintaining expectations for Beer net sales growth of -1% to 1%, Beer operating margins of 37% to 38%, operating cash flow of $2.4 billion to $2.5 billion, and free cash flow of $1.6 billion to $1.7 billion.

The only notable change was an increase in reported EPS guidance to $11.50-$12.20, reflecting items outside the company’s comparable results.

For investors, management’s decision to keep its comparable guidance suggests confidence that current demand trends and profitability remain strong despite ongoing macroeconomic uncertainty.

With shares moving higher after the report, the focus will now shift to whether executives provide a more optimistic tone during the earnings call, particularly around beer demand and the second half of the fiscal year.

Constellation’s reported revenue declined 3% year over year, but that figure masks improving trends across the core business.

After adjusting for last year’s wine divestitures, organic net sales actually increased 3%, driven by continued strength in the Beer segment and improving momentum in the remaining Wine & Spirits portfolio. That means the reported decline reflects a smaller business following the sale of lower-end wine brands rather than broad-based weakness across the portfolio.

Beer net sales increased 2%, while the remaining Wine & Spirits business generated 8% organic net sales growth and 6.6% depletions growth, outperforming the broader wine and spirits category in both dollar and volume sales.

Management said the company also gained market share during the quarter despite what it described as a “discerning and value-conscious consumer environment,” suggesting premium brands continue to resonate with consumers.

Constellation Brands continued generating strong cash flow while returning significant capital to shareholders.

Operating cash flow increased to $662 million, while free cash flow climbed 9% to $485 million during the quarter. The company repurchased $324 million of stock through June and returned more than $400 million to shareholders through buybacks and dividends.

It also reaffirmed its fiscal 2027 targets for $2.4-$2.5 billion in operating cash flow and $1.6-$1.7 billion in free cash flow.

Management said it remains committed to balancing investments in growth, including construction of its third brewery in Veracruz, with continued shareholder returns.

Constellation Brands just reported fiscal first-quarter results, with shares rising roughly 3% in after-hours trading after delivering stronger-than-expected profitability while maintaining its comparable full-year outlook.

Key numbers:

• Revenue: $2.43 billion
• Reported EPS: $3.79
• Comparable EPS: $3.43
• Operating Income: $845 million (+18% YoY)

Quick read:

• The headline was driven by stronger earnings growth despite a 3% decline in reported net sales, reflecting last year’s wine divestitures.
• Management also reaffirmed its comparable FY2027 EPS outlook while slightly raising reported EPS guidance.

Heading into tonight’s report, here are the needle-moving items from Q4 FY2026 (reported April 8, 2026) that frame the setup heading into tonight’s Q1 results.

Last Quarter’s Top 3 Takeaways:

• Tone inflection from CEO Bill Newlands. Management’s language shifted from neutral in Q3 (“challenged operating environment”) to clearly upbeat in Q4, with Newlands citing “momentum we saw in the fourth quarter” and a “best-in-class organization is energized”. That positive pivot makes the FY2027 organic sales range of -1% to +1% look potentially conservative if Q1 confirms the momentum.
• Beer margin took a real hit from aluminum tariffs. Beer margins contracted roughly 340 basis points last quarter on tariff costs and higher depreciation, even as Beer net sales rose 1%. Whether that pressure is stabilizing or intensifying is the single biggest swing factor against the 37% to 38% Beer operating margin guide.
• Secondary brands are doing the heavy lifting. Pacifico delivered roughly 21% depletion growth in Q4 and Victoria around 17%, while Modelo Especial and Corona Extra depletions continued to decline. The portfolio was still the #1 dollar share gainer in U.S. tracked channels, but tonight’s question is whether the smaller brands can keep offsetting softness in the two largest franchises.

Layer in $924.1M in FY2026 buybacks, plus another $75M in March 2026, and a 1% dividend hike to $1.03, and capital return remains the floor under the story.

Top 5 Analyst Questions:

• Can March/April beer momentum sustain into Q1, given California share gains of over 1 point in the last four weeks?
• Update on Veracruz brewery startup timing and depreciation step-up?
• Any read-through on tariff relief or CUSMA risk?
• How is Wine & Spirits distributor destocking progressing?
• Is 9.5% of sales marketing spend front-loaded for the World Cup?

Key Topics:

• Pacifico and Victoria runway
• Modelo Especial trajectory
• FY2028 visibility
• Capital return cadence after $924.1M in FY2026 repurchases

Buzzwords:

• “factors within our control,” “dynamic operating environment,” “modular brewery expansion,” “depletion growth,” and “dollar share gainer.”

Red Flags:

• Comparable EPS guidance trimmed below $11.20
• Beer operating margin slipping below 37%
• Deeper Modelo Especial and Corona Extra declines
• Deceleration in Pacifico and Victoria depletions

Even after rebounding from recent lows, Constellation Brands still trades at roughly 12x forward earnings, well below many consumer staples peers.

Bulls argue that if management delivers a confident outlook, shows improving beer trends, and highlights World Cup-driven demand, investors could begin assigning the stock a higher earnings multiple.

With expectations remaining relatively muted heading into tonight’s Q1 2027 earnings report, positive guidance could have an outsized impact on sentiment.

Beyond sales growth, investors are watching whether stronger demand for beer can translate into higher profits.

Constellation entered fiscal 2027 with approximately 90% of its aluminum needs hedged, limiting the impact of higher aluminum costs that pressured margins after Section 232 tariffs were expanded.

If beer volumes improve alongside those lower input costs, earnings could outperform current Wall Street expectations.

One bullish thesis heading into earnings is that the 2026 FIFA World Cup could provide a meaningful demand boost for Constellation Brands’ beer portfolio.

Roughly 75% of tournament matches will be played in the U.S., while most games fall into North American viewing windows that historically support higher beer consumption.

Management has already said it plans to invest aggressively behind its brands during the tournament, particularly its premium light beer strategy.

Investors will be listening for any early read on World Cup demand and whether management believes it can provide a meaningful tailwind for fiscal 2027.

Tonight’s headline EPS number matters less than what management says about the rest of FY2027. Current guidance calls for comparable EPS of $11.20 to $11.90, Beer net sales growth of –1% to 1%, and a Beer operating margin of 37% to 38%, after the company withdrew its FY2028 outlook because of macroeconomic and tariff uncertainty.

Management has become more cautious after cutting FY2026 guidance last quarter, so investors will be listening closely for any changes in tone. The biggest questions are whether tariffs remain manageable, whether Pacifico and Victoria continue outperforming, and whether the Wine & Spirits business is finally stabilizing.

Bullish: Comparable EPS guidance above $11.90, Beer margins toward the high end of the range, or renewed visibility into FY2028.

Bearish: Comparable EPS guidance below $11.20, broader tariff headwinds, or further pressure on Beer margins.

This quarter marks one of the first major tests for CEO Bill Fink as investors look for evidence that Constellation Brands can navigate slowing consumer spending while protecting its industry-leading beer business.

The stock trades at roughly 12x forward earnings, a discount to many consumer staples peers, reflecting concerns around tariffs, softer wine and spirits demand, and questions about earnings growth.

The focus tonight is likely going to be around management’s commentary. Investors want reassurance that the beer segment can continue delivering solid margins and market share gains while the company executes its turnaround in wine and spirits.

A confident outlook for the second half of the fiscal year could help sentiment improve quickly. On the other hand, any signs of weakening demand or more cautious guidance would likely increase skepticism around current FY2027 earnings expectations.