Constellation Brands, Inc.’s STZ has reported third-quarter fiscal 2025 results, wherein the bottom and top lines missed the Zacks Consensus Estimate. The company’s sales dropped year over year.
Comparable earnings per share (EPS) of $3.25 improved 0.3% year over year in the fiscal third quarter but lagged the Zacks Consensus Estimate of $3.34. On a reported basis, the company recorded EPS of $3.39 compared with $2.76 in the year-ago quarter.
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Net sales dipped 0.4% year over year to $2.46 billion and missed the Zacks Consensus Estimate of $2.54 billion. This was due to softness in the wine and spirits segment, offset by growth in the beer business.
Constellation Brands Inc Price, Consensus and EPS Surprise
Constellation Brands Inc Price, Consensus and EPS Surprise
Shares of the company have fallen nearly 12% during trading session on soft quarterly results. This Zacks Rank #3 (Hold) stock has lost 16.7% in the past three months compared with the industry’s decline of 15%.
STZ’s Q3 Performance in Details
Constellation Brands' sales for the beer business advanced 3% year over year to $2 billion, backed by a 1.6% rise in shipment volumes and 3.2% depletion volume growth. Depletion volumes were aided by robust demand for most of its brand portfolio, led by strength in the Modelo Especial, Pacifico and Modelo Chelada brands.
The depletion volume increased above 3% year over year for Modelo Especial, 20% for Pacifico and 4% for Modelo Chelada. However, depletions dipped 1% for Corona Extra.
Sales in the wine and spirits segment dropped 14% to $431.4 million in the fiscal third quarter. Sales were affected by a 16.4% decrease in shipment volumes and a 4.3% fall in depletions. This mainly stemmed from soft consumer demand and continued retailer inventory destocking in most price segments in the U.S. wholesale market.
Sneak Peek Into Constellation Brands’ Margins
STZ's comparable operating income was $802.2 million, down 2.1% from the prior-year quarter. This downside was caused by declines in operating income in the beer business, and wine and spirits segment.
Operating income for the beer segment improved 13% year over year to $1.08 billion. The operating margin for the beer segment fell 60 bps to 37.9%, due to increased marketing spend and elevated depreciation expenses, partly negated by favorable pricing.
Operating income for the wine and spirits segment declined 25% year over year to $95.2 million. The segment’s operating margin fell 333 bps to 22.1%, as lower sales exceeded the decline in the cost of goods sold and selling, general and administrative costs.
STZ’s Financial Position Seems Strong
As of Nov. 30, 2024, Constellation Brands’ cash and cash equivalents were $73.7 million, long-term debt (excluding current maturities) was $10.2 billion and total shareholders’ equity (excluding non-controlling interest) was $7.8 billion. The company generated an operating cash flow of $2.6 billion and an adjusted free cash flow of $1.6 billion for the nine months ended Nov. 30, 2024.
STZ’s board announced a quarterly dividend of $1.01 per share for Class A shares on Jan. 8, 2025. The dividend is payable on Feb. 21 to its shareholders of record as of Feb. 7, 2025.
Constellation Brands’ FY25 Expectations
The company revised its EPS outlook for fiscal 2025. Management anticipates an enterprise net sales increase of 2-5% for fiscal 2025, with 4-7% sales growth for the beer segment. However, sales for the wine and spirits segment are expected to decline 5-8%.
STZ anticipates enterprise operating income on a reported basis to decline 62-65% for fiscal 2025, while the comparable operating income is expected to improve 6-9%. The company expects operating income to improve 9-12% for the beer segment and decline 17-19% for the wine and spirits segment. Corporate expenses are expected to be $250 million for fiscal 2025.
The company now envisions comparable EPS guidance of $13.40-$13.80 for fiscal 2025 compared with the earlier estimate of $13.60-$13.80. It recorded a comparable EPS of $12.38 and a reported EPS of $9.39 in fiscal 2024.
Constellation Brands predicts net interest expenses of $410 million for fiscal 2025. It anticipates a reported tax rate of 8% and a comparable tax rate of 18.5% for fiscal 2025. The company expects shares outstanding to be 182.5 million for fiscal 2025, inclusive of share repurchases.
Constellation Brands now forecasts operating cash flow of $2.9-$3.1 billion for fiscal 2025. It expects a free cash flow of $1.6-$1.8 billion. STZ plans to incur a capital expenditure of $1.3 billion in fiscal 2025, including nearly $1 billion targeted for Mexico beer operations activities.
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