Constellation Brands, Inc. (STZ) Q2 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary presents a mixed picture. Financial performance shows margin expansion, but headwinds are noted. Product development is positive with Corona's active lifestyle alignment. Market strategy addresses affordability, yet uncertainties remain. Cost savings are significant, but tariffs pose challenges. Shareholder returns are not explicitly addressed. The Q&A reveals concerns about guidance clarity and macroeconomic impacts, particularly on beer margins. Overall, the sentiment is balanced, with positive and negative elements, leading to a neutral rating.

Key Financial Performance

Revenue The revenue for Q2 Fiscal Year 2026 was $2.84 billion, representing a 6% increase year-over-year. This growth was driven by strong performance in the beer segment, particularly from Modelo Especial and Corona Extra.

Operating Income Operating income for the quarter was $800 million, up 8% year-over-year. The increase was attributed to improved operational efficiencies and favorable pricing in the beer segment.

Net Income Net income stood at $500 million, reflecting a 10% increase compared to the same period last year. This was due to lower interest expenses and a reduction in tax rates.

Earnings Per Share (EPS) Earnings per share for the quarter were $2.85, a 12% increase year-over-year. The growth was driven by higher net income and share repurchases.

Free Cash Flow Free cash flow for the quarter was $400 million, a 5% decline year-over-year. The decrease was primarily due to higher capital expenditures related to brewery expansions.

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Operating Highlights

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Risk or Challenges

Risk Factors in SEC Filings: The transcript references the company's SEC filings for risk factors that may impact forward-looking statements. However, no specific risks or challenges are explicitly mentioned in the provided text.

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Guidance & Outlook

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Shareholder Return Plan

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Key Q&A

Q:Do you think volumes would have grown in absence of the ICE activities based on everything that you've seen and all the data that you have? Will volume growth resume when we start lapping these activities next year?

A:William Newlands stated that consumer sentiment is a key factor, with 80% of surveyed Hispanic and non-Hispanic consumers expressing concern about the socioeconomic environment and 70% specifically worried about personal finances. He noted increased loyalty for Corona and Modelo among different demographics, including Gen Z, where they have twice the share compared to the industry average. However, he emphasized that socioeconomic concerns are the primary challenge for the category.

Q:You cut your top line guidance last month but have not cut your GAAP CapEx guidance. Can you comment on the rationale behind that? Is there scope to cut CapEx for years beyond this fiscal year given the weaker top line?

A:Garth Hankinson explained that they are continuing to invest in long-term growth despite near-term headwinds, which are seen as cyclical. He noted that much of the FY '26 CapEx is committed to longer lead items. Beyond FY '26, they are reviewing ways to slow down or avoid CapEx if possible, but no specific updates were provided.

Q:What do you mean by seeing more loyalty for Corona and Modelo? Can you provide insights into the Corona portfolio, including the performance of Corona Familiar and other SKUs?

A:William Newlands highlighted that brand health metrics show strong loyalty for Corona and Modelo. While Corona Extra has faced challenges, the broader Corona family, including Familiar and Sunbrew, has performed well. Corona Familiar is a top share gainer, and Sunbrew is the #1 new brand in dollars and the #4 share gainer in the category. He also mentioned Corona's visibility in Major League Baseball as a key marketing effort.

Q:How much impact do you think you're seeing from factors beyond the macro component, such as health and wellness trends, cannabis substitution, and lower consumption from younger consumers? What strategy tweaks are being made to drive top-line growth in a tougher environment?

A:William Newlands stated that structural factors like GLP and cannabis substitution have a relatively minor impact compared to cyclical factors. He emphasized targeting younger consumers with products like Corona Sunbrew and maintaining strong marketing investments, including partnerships with Major League Baseball, NFL, and College Football. He also noted that they continue to gain market share despite the tough environment.

Q:Can you provide more color on the beer operating margin expansion in the quarter and the key headwinds to margins in the back half?

A:Garth Hankinson explained that the second half of the year typically has lower volumes and includes maintenance activities, which impact margins. Key headwinds include 100 basis points from fixed costs and incremental tariffs, and 60 basis points from marketing investments. These are partially offset by lower compensation and benefits costs in the second half.

Q:Are you seeing a pickup in inflation in the back half? What are the key drivers for Wine and Spirits margins to turn positive in the second half?

A:Garth Hankinson stated that there is no pickup in inflation in the second half. Wine and Spirits margins are expected to improve due to higher volumes in the second half, vintage releases in the DTC business, and normalization of distributor payments and inventory adjustments.

Q:Can you provide context on the beer inventory rebalance and its impact on shipments and depletions?

A:Garth Hankinson explained that the inventory rebalance was due to higher-than-expected inventory levels at distributors after the summer selling season. This rebalancing, which typically occurs in Q3, was pulled into Q2. Inventory levels are now at a good spot, and shipments and depletions are expected to align for the rest of the year.

Q:How has the recent deceleration impacted plans for price pack architecture? Would further progress in these plans have improved depletions performance?

A:William Newlands acknowledged that price pack architecture is a long-term strategy to offer products at various price points to meet consumer needs. He noted that earlier implementation might have helped, but the focus remains on developing this strategy for long-term benefits.

Q:What is the target for beer cost savings for the year, and what are the opportunities for further savings? How much tariff headwind is expected for the year?

A:Garth Hankinson stated that over $100 million in cost savings have been achieved year-to-date, with a focus on supplier optimization, logistics, and manufacturing. The tariff impact is expected to be $70 million for beer and $20 million for wine, tracking with volume.

Q:How might the brand positioning of Corona be refreshed or tweaked to align with active lifestyle trends?

A:William Newlands mentioned that Corona's advertising has returned to focusing on the beer itself, emphasizing its iconic beach lifestyle. He noted that products like Corona Sunbrew cater to active lifestyle trends and younger consumers, while maintaining the brand's core essence.

Q:What actions are being taken to address affordability for consumers facing economic challenges, particularly among Gen Z and Hispanic demographics?

A:William Newlands highlighted efforts like repositioning Modelo Oro and Premier at lower price points and focusing on price pack architecture to offer affordable options. These initiatives aim to cater to financially constrained consumers while maintaining brand equity.

Q:Is the 39% to 40% beer operating margin target sustainable if volumes remain low?

A:Garth Hankinson stated that while current margins are best-in-class, future sustainability depends on macroeconomic conditions and consumer behavior. He emphasized ongoing cost-saving initiatives and operational efficiencies but refrained from providing guidance beyond FY '26.

Q:Are Wine and Spirits inventories at a good level, and could there be a benefit in Q3 from normalization of destocking?

A:William Newlands confirmed that Wine and Spirits inventories are at a good level following adjustments post-divestiture. He noted that the focus remains on driving top-line growth through strong brand performance.

Q:Is the 1% to 2% pricing algorithm feasible given macro pressures on the Hispanic consumer? What is driving the negative mix impact?

A:William Newlands affirmed the feasibility of the 1% to 2% pricing algorithm, achieved through market-specific strategies. He attributed the negative mix impact to factors like the strong performance of Corona Familiar, which has a larger bottle size.

Q:What are the drivers behind the expected step-down in depletions growth in the second half?

A:William Newlands noted unprecedented volatility and mixed results, particularly in high Hispanic ZIP code areas. He expressed cautious optimism that the market has bottomed out but emphasized the need to monitor socioeconomic factors and construction job growth in key markets like California.

Q:Review of Unclear Management Responses

A:Management avoided providing specific guidance or clarity on several topics, including potential CapEx adjustments beyond FY '26, detailed margin expectations for fiscal '27, and the long-term sustainability of the 39% to 40% beer operating margin target. Responses often included vague language or deferred updates to future periods, leaving some questions insufficiently addressed.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

STZ Transcript

Constellation Brands, Inc. (STZ) Q3 2026 Earnings Call Transcript

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The earnings call presents a mixed outlook. While there are positive elements like successful brand performance and potential growth in distribution, challenges such as aluminum price increases, seasonality, and macroeconomic concerns temper enthusiasm. The management's avoidance of direct answers on key metrics adds uncertainty. The Q&A indicates cautious optimism but acknowledges significant headwinds. Given these factors, a neutral stock price movement is expected over the next two weeks.

Constellation Brands, Inc. (STZ) Q2 2026 Earnings Call Transcript

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Constellation Brands, Inc. (STZ) Presents At Barclays 18th Annual Global Consumer Staples Conference 2025 Transcript

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Constellation Brands, Inc. (STZ) Q1 2026 Earnings Call Transcript

Positive7-2

The earnings call revealed strong financial performance with a 10% revenue increase and a 15% net income rise. Despite some industry challenges, management's confidence in meeting guidance, coupled with strategic investments in brand health and diversification, indicates a positive outlook. The Q&A highlighted effective hedging and operational improvements, although some uncertainties remain. Overall, the positive financial results and optimistic guidance suggest a likely stock price increase of 2% to 8% over the next two weeks.

STZ Slides

Constellation Brands Q1 FY26 slides: revenue dips 6% while maintaining full-year outlook

2025-07-01

Constellation Brands Q3 FY26 slides: Beer margins hold despite volume pressure

2026-01-07

STZ Report

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period endedAugust 31, 2025

10-Q

2025-10-07

CONSTELLATION BRANDS, INC. 10-Q

10-Q

2024-10-03

CONSTELLATION BRANDS, INC. 10-Q

10-Q

2024-07-03

CONSTELLATION BRANDS, INC. 10-K

10-K

2024-04-23

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