On July 3, 2024, Constellation Brands Inc (STZ, Financial) released its 8-K filing for the first quarter of fiscal year 2025, showcasing robust financial results driven by its beer business. Constellation Brands is the largest provider of alcoholic beverages across the beer, wine, and spirits categories in the US, generating 80% of revenue from Mexican beer imports under top-selling brands such as Modelo and Corona. The rest of the business includes some remaining wine and spirits brands, categories where the company continues to prune assets in recent years. With its exclusive rights tied to the Mexican beer brands effective only in the US, the firm has small revenue exposure to international markets. Constellation owns a 36% stake in no-moat Canopy Growth, a medicinal and recreational cannabis producer in Canada, and has a 50/50 joint venture with glass manufacturer Owens-Illinois in Mexico.
Financial Highlights
Constellation Brands Inc (STZ, Financial) reported net sales of $2,662 million for Q1 FY 2025, a 6% increase compared to the same period last year. The company's reported earnings per share (EPS) stood at $4.78, while the comparable EPS was $3.57, surpassing the analyst estimate of $3.46. The reported operating income was $942 million, reflecting a 23% increase, and the net income attributable to Constellation Brands was $877 million.
Performance Analysis
The beer business continued to be the primary growth driver, achieving an 8% increase in net sales and a 16% rise in operating income. This growth was primarily driven by a 7.6% increase in shipment volumes and strong demand across the portfolio, particularly for Modelo Especial, Pacifico, and Modelo Chelada brands. The beer business also benefited from cost-saving initiatives and marketing efficiencies, which contributed to a 260 basis point increase in operating margin to 40.6%.
In contrast, the wine and spirits segment faced challenges, with net sales declining by 7% and operating income decreasing by 25%. The segment's performance was impacted by a 5.1% decrease in shipment volumes and higher costs of goods sold (COGS), which offset the benefits from lower SG&A and marketing expenses. Despite these challenges, the company reaffirmed its fiscal 2025 outlook for the wine and spirits business.
Key Financial Metrics
| Metric | Q1 FY 2025 | Q1 FY 2024 | % Change |
|---|---|---|---|
| Net Sales | $2,662 million | $2,510 million | 6% |
| Operating Income | $942 million | $765 million | 23% |
| Net Income | $877 million | $300 million | NM |
| EPS | $4.78 | $1.63 | NM |
Cash Flow and Shareholder Returns
Constellation Brands generated $691 million in operating cash flow during the first quarter, a 4% increase from the previous year. However, free cash flow decreased by 19% to $315 million, primarily due to investments in brewery capacity. The company returned over $240 million to shareholders through share repurchases and declared a quarterly cash dividend of $1.01 per share of Class A Common Stock.
Outlook
Constellation Brands updated its fiscal 2025 reported EPS outlook to a range of $14.63 to $14.93 and affirmed its comparable EPS outlook of $13.50 to $13.80. The company also reaffirmed its fiscal 2025 operating cash flow target of $2.8 to $3.0 billion and free cash flow projection of $1.4 to $1.5 billion.
Commentary
"Our Beer Business continued to achieve strong volume growth well above that of its category and total Beverage Alcohol. This outstanding performance supported the second largest dollar share gain within the broader Beverage industry and reinforced our significant growth outperformance relative to the entire CPG sector." - Bill Newlands, President and Chief Executive Officer
"The consistent top-line growth and cost savings actions of our Beer Business drove strong operating income and cash flow generation in Q1. In line with our disciplined and balanced capital allocation priorities from the last five years: we lowered our net leverage ratio to 3.1x and continue to expect to achieve our ~3.0x target this fiscal year; returned cash to shareholders through our dividend and $200 million of share repurchases in Q1; continued to advance our brewery investments in our Beer Business; and executed a tuck-in acquisition bringing mix and asset utilization benefits for our wine portfolio." - Garth Hankinson, Executive Vice President and Chief Financial Officer
For more detailed information, please refer to the full 8-K filing.
Explore the complete 8-K earnings release (here) from Constellation Brands Inc for further details.
