Constellation Brands’ CEO is “cautiously optimistic” on the business having “hit the bottom” when it comes to macro pressures that have affected its sales in recent months.
In a call yesterday (7 October) following the release of the group’s second quarter results, Deutsche Bank analyst Chris Barnes asked the group to detail expectations for its second half of the fiscal year.
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While CEO Bill Newlands said he couldn’t give any predictions, he noted the group had “seen unprecedented volatility, and there’s very mixed results”.
He said that when tracking US zip code data, “high Hispanic zip code areas are significantly worse than what you see in the general market”, but the business had witnessed “some positive uptick” in some of its top five states, “where the general market zip codes are a higher proportion of the overall consumer base”.
Newlands added: “We’re cautiously, and I would stress that word again, ‘cautiously’ optimistic that we’ve hit the bottom here. But the volatility, as I said, is unprecedented, and the results are very mixed.”
Constellation has been facing weakened consumer sentiment from Hispanic drinkers for some time, with socioeconomic factors causing a shrink in consumer drinking occasions. Hispanic consumers make up around half of Constellation’s total beer business, Newlands said in April.
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By GlobalDataIn yesterday’s Newlands call also noted that California had been “the single biggest problem” with intensive labour roles not having “materialised to the rate we would have expected”.
“Part of that question is going to be, will some of that construction opportunities reinvigorate? Because that’s good for the beer business, and that’s particularly good for us given our strength in that particular market.
“All in, we don’t expect a radical change, nor are we projected, based on our overall guidance, a radical change in the back half of the year, but we’re going to watch that very closely and see if there’s any improvement in the volatility that’s been going on in the overall marketplace over the last several months.”
Earlier in the investor call, Newlands said its monthly study of all its consumers, the business found “80% of surveyed Hispanic and non-Hispanic consumers continue to express concern about the socioeconomic environment we face”, and that 70% are worried in particular “about their personal finances”.
In contrast, he added: “At the same time, you’re seeing increased loyalty. Our loyalty is up with Corona in the general market. Our loyalty is up with Hispanic consumers for Modelo.”
In its second quarter fiscal 2026 results, Constellation saw reported and organic net sales decline 15% to $2.5bn.
Operating income in the period ended 31 August grew 171% at $874m.
Nets sales in its beer business were down 7% to $2.3bn, while operating income dropped 12% to $951.6m.
The dip in net sales was driven by an 8.7% dip in shipment volumes, a statement from the company said, indicating “socioeconomic headwinds affecting consumer demand, along with distributor inventory rebalancing during the quarter”.
Constellation’s wine and spirits business saw net sales slump 65% on a reported basis to $136m. The dip was attributed to a 76.4% slump in shipment volumes as a result of the sale of Svedka vodka to Sazerac announced at the end of last year.
Organically, net sales of its wine and spirits business were down 19%.
The group expects to book a 4-6% decline in total organic net sales in its fiscal 2026.
In its beer business, Constellation anticipates net sales decline of 2-4% and a dip of 17-20% in net sales for wine and spirits.
