Release Date: October 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Constellation Brands Inc (STZ, Financial) achieved the number one spot for dollar sales growth and share gains within the beverage alcohol sector, outpacing the total CPG sector.
- The beer business delivered significant margin expansion and maintained its leading share-gaining position in the US beer category.
- The company achieved a pivotal milestone in capital allocation priorities by reaching a 2.9 net leverage ratio, slightly below the target of approximately 3 times.
- Constellation Brands Inc (STZ) returned nearly $250 million to shareholders through share repurchases in Q2, totaling approximately $450 million year-to-date.
- The company reported double-digit growth in comparable EPS, in line with its full-year outlook, supported by strong earnings performance and significant cash generation.
Negative Points
- The wine and spirits business faced incremental category headwinds, particularly in lower price segments, leading to a 9.8% decline in shipments year-on-year.
- Net sales and operating income for the wine and spirits segment declined by 12% and 13%, respectively, due to weaker consumer demand and retailer inventory destocking.
- The company recorded a non-cash goodwill impairment loss of $2.25 billion for the wine and spirits business, impacting reported enterprise operating income.
- Corona Extra depletions declined approximately 3%, although it remains a top five beer brand in dollar sales in the US.
- The macroeconomic backdrop, including rising unemployment rates, particularly in the Hispanic market, led to a deceleration in consumer demand for Constellation Brands Inc (STZ)'s products.
Q & A Highlights
Q: Can you discuss your plans for share repurchases now that you've hit your leverage target, and how often does the Board meet to discuss this?
A: We have been opportunistic with share repurchases, accelerating activity in Q2 with $249 million repurchased, totaling nearly $450 million for the first half of the year. We have $2.2 billion left under the current authorization, allowing us to continue this strategy. Typically, we get additional authorizations in the back half of our fiscal year. - Garth Hankinson, CFO
Q: Beer depletions were softer this quarter. Can you explain the factors behind this and how recent trends inform your future outlook?
A: Higher unemployment rates, particularly in the Hispanic market, and the macroeconomic environment affected our top states. However, demand remains strong, and recent trends show improvement. We remain optimistic about the back half of the year. - William Newlands, CEO
Q: How have your increased space and distribution gains impacted your beer business, and what are your expectations for the second half of the year?
A: We gained double-digit share in spring resets, which is beneficial. We are also increasing marketing investments due to cost savings, which should enhance our results in the second half of the year. - William Newlands, CEO
Q: Corona's performance was weaker this quarter. Is this due to competition from Modelo or other factors?
A: Corona was slightly softer due to macro factors and its East Coast market exposure. However, recent data shows improvement, and we are excited about new launches like Corona Sun Brew. We expect Corona to perform well for the rest of the year. - William Newlands, CEO
Q: Can you elaborate on the marketing spend for beer and how it aligns with your full-year guidance?
A: We are increasing marketing investments for brands like Corona and Modelo Chelada, supported by cost savings. This is reflected in our full-year guidance, with a significant impact expected in Q3. - William Newlands, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
