Constellation Brands beat on earnings. Its two biggest beers still sold less

Constellation Brands handed Wall Street a quarter with two very different readings. On the scoreboard most investors check first, it was a clean beat. On the measure that tells you how many cases of Modelo and Corona are actually leaving distributors' warehouses, it was a small step backward.

The company, which sells Mexican beer brands in the US along with a wine and spirits portfolio, reported after Tuesday's close for its fiscal second quarter, which ended August 31. Its earnings call is scheduled for 8 a.m. ET on Wednesday.

The headline numbers

Net sales rose 6% from a year earlier to $2.633 billion. Comparable earnings, which strip out one-time items, were $3.74 a share, up 3%. Reported earnings were $3.32 a share, up 25%, and net income attributable to the company rose 21% to $565.8 million.

Both comparable figures came in ahead of expectations. The average estimate of seven analysts surveyed by Zacks Investment Research was $3.62 a share, and six analysts expected about $2.57 billion in sales, according to the Associated Press.

Operating income told a less flattering story. Reported operating income fell 8% to $805 million, and the company said operating margin narrowed 160 basis points to 39.0%, as heavier marketing and other selling and administrative spending more than offset lower tariff costs.

The number underneath: depletions

Beer companies like Constellation report two kinds of volume. Shipments measure what the company sends to distributors. Depletions measure what distributors then sell on to bars, restaurants and stores, which makes them the closer read on actual consumer demand.

Shipments were healthy. Beer net sales rose 5% to $2.474 billion, and the company said shipment volume grew at a mid-single-digit pace. Depletions, however, fell 0.6%. Modelo Especial declined about 2% and Corona Extra about 5%. Pacifico grew about 19%, Victoria about 15% and the Modelo Chelada line about 5%, which softened the overall decline.

The company attributed part of the shortfall to off-premise activity around the World Cup in June and July coming in below industry expectations. It also said distributors ordered slightly more than they sold during the quarter to rebuild inventories that had run low, and that inventory levels are now healthier but still below historical averages.

Shipping more beer than drinkers are buying can be perfectly normal for a quarter. It cannot be the trend for long.

There is a competitive angle as well. Constellation said its beer business was the top gainer of both dollar and volume share in Circana-tracked US channels, and that Modelo Especial remains the top-selling beer brand by dollar sales. In other words, the company says it is taking a bigger slice of a beer category that is itself not growing much.

Wine, spirits and a new drink

The smaller wine and spirits unit had a better quarter. Net sales rose 17% to $159.4 million, depletions grew 10.2%, and the segment posted operating income of $6.1 million compared with a $19.8 million loss a year earlier.

Constellation also said it had completed the acquisition of SpikedAde, a spirit-based ready-to-drink brand, for $75 million at closing plus up to $278 million in contingent payments over five years tied to future performance. The company said the deal does not change its fiscal 2027 outlook.

Guidance and cash returns

For the fiscal year ending February 28, 2027, Constellation reaffirmed comparable earnings of $11.20 to $11.90 a share and updated its reported earnings range to $11.85 to $12.55. It kept its operating cash flow target of $2.4 billion to $2.5 billion and free cash flow of $1.6 billion to $1.7 billion.

The company has repurchased $530 million of its own shares year to date through September and declared a quarterly dividend of $1.03 per Class A share, payable November 13 to holders of record on October 30.

Why the stock's reaction matters

The shares closed Tuesday's regular session up about 2.1% at $115.67, but that level sits roughly 14% below where the stock traded about 30 sessions ago, around $135. Early premarket indications on Wednesday pointed lower. A beat on earnings, a reaffirmed outlook and a lower stock would be a familiar pattern for a company where investors have been focused on volumes rather than profit per share.

What to watch on the call

• Whether management describes the Modelo and Corona declines as World Cup timing or as a softer underlying trend.
• How much more marketing spending is planned, given the 160-basis-point margin squeeze this quarter.
• Any comment on distributor inventories heading into the slower winter season.
• How the company frames demand among Hispanic consumers, which it says remains its strongest group.

The quarter answers the question of whether Constellation can still grow earnings. The call will be judged on a harder one: whether its biggest brands can grow volume again.