Constellation Brands (STZ -2%) reported mixed results for Q2, with its beer segment thriving while the wine and spirits division faced challenges. The company's beer business saw increased sales and shipment volumes, capturing more market share and resulting in a double-digit earnings beat and revenue growth.
Conversely, STZ's wine and spirits segment struggled, experiencing a 12.0% sales decline and a 9.8% drop in shipment volumes due to tough macroeconomic conditions. This led to a $2.25 billion goodwill impairment loss, at the higher end of the estimated range of $1.5-$2.5 billion.
STZ has been restructuring its wine and spirits division, selling off 90% of its lower-end brands to focus on premium offerings. CEO William Newlands noted potential benefits from this strategy might appear in FY25's later quarters, although economic challenges could delay these results.
- STZ's beer business remains strong, with a 6.0% increase in net sales and a 4.6% rise in shipment volumes. Modelo Especial saw a 5% demand increase, and Pacifico experienced a 23% boost.
- Operating margins improved by 270 basis points year-over-year to 42.6%, aided by cost-saving measures like switching to plastic pallets, achieving $260 million of the $300 million savings target.
- STZ's solid beer performance resulted in adjusted EPS of $4.32, up 14% year-over-year, and revenues of $2.92 billion, a 3% increase. The company reaffirmed its FY25 guidance with an adjusted EPS of $13.60-13.80 and revenue growth of 4-6%.
The disparity between STZ's beer and wine and spirits segments is affecting its overall results and possibly its stock price. Investor patience is waning as the wine and spirits division continues to underperform, emphasizing the need for a turnaround amid ongoing economic headwinds.
