Constellation Brands (STZ) Taps Into Strong Beer Business, But Wine And Spirts Are Still A Headache

Alcoholic beverage company Constellation Brands (STZ) tapped into its high riding beer business once again in 2Q23 to deliver a solid beat-and-raise quarterly report. The momentum underlying the company’s Mexican beer brands, including Modelo, Corona, and Pacifico, has remained steady, even as macroeconomic headwinds strengthen. Consistent market share gains, especially for Modelo, which remained the top share gainer in the entire U.S. beer category, and an ongoing recovery in the foodservice channel, are driving the strength in STZ’s beer category.

Similar to recent past quarters, the beer business outperformed the wine and spirits business by a wide margin. Depletions, which measures the number of cases sold to distributors, increased by nearly 9% for beer, while wine and spirts experienced a 2.2% decline. A few other key items jump out regarding this divergence.

On a positive note, high-end brands like Meiomi, The Prisoner Wine Company, and Casa Nobel Tequila, experienced double-digit growth in Q2. In total, the fine wine and craft spirits category posted depletion growth of 16%. We do have some concern, though, whether demand for pricier wine and spirits will hold up as consumers tighten their budgets.

STZ did nudge the upper end of its FY23 EPS guidance range higher, forecasting EPS of $11.20-$11.60, compared to its prior outlook of $11.20-$11.50. However, this slight upward revision is entirely due to the improving performance of the beer segment, which is now expected to achieve net sales and operating income growth of 8-10% and 3-5%, respectively. Previously, the company was forecasting net sales and operating income growth of 7-9% and 2-4%, respectively