Constellation Drops Despite Earnings Beat

The wine and spirits company reported a combination of positive and negative results before trading began on Thursday, as it dealt with a particularly difficult customer environment.​

Consumer Spending Remains Cautious

While consumer sentiment in the United States has generally remained positive, this outlook has not translated into increased consumer spending on staple goods. Companies across this sector have faced challenging conditions, with sales volumes either stagnating or declining since the first quarter of the previous year. The alcohol subsector, including beer and wine producers, may have proven somewhat resilient.

However, results from Constellation Brands indicate that willingness to spend on wines and spirits matches spending on other staples such as spices and cereals (McCormick and General Mills saw no growth in sales). In its second fiscal quarter, Constellation reported comparable sales growth of 2.8%, achieving revenue of approximately $2.92 billion, meeting analyst forecasts. Analysts had lowered their sales outlook and now expect third quarter sales, which include the pre-holiday period, to decline to around $2.59 billion. The company reaffirmed its previous guidance, anticipating earnings per share of $13.60 to $13.80 on net sales growth of 6-7%.​

Making the Best of the Situation

Despite the challenges, the company performed better than expected on the bottom line, as both the CEO and CFO highlighted cost reduction and efficiency efforts while acknowledging challenges in the beer market. The company reported an EPS of $6.59 due to a one-time non-cash goodwill impairment in the Wine and Spirits business, which was previously announced. The adjusted EPS of $4.32 comfortably beat forecasts of $4.11.

Wine and spirit sales decreased 12% in value, and volumes were down 9.8%. This was offset by growth in beer sales by the Modelo and Pacifico brands. Beer sales increased 6% in value, while volumes increased 4.6%. Modelo gained the most market share in the United States as the Bud Lite fiasco seems to have staying power. It seems consumers continue preferring more affordable options, impacting higher-margin products.

The stock initially reacted positively to the earnings before and after the announcement. However, by the afternoon, it all changed. The company's share price turned negative, falling 3.9% for the day and underperforming the S&P 500 index.​

Constellation in Triangle Pattern, So Far

Constellation stock had risen 15% from its swing of $225 to $260 prior to announcing its earnings but has fallen since. The share price may fall slightly further to test the previous low of $250 before completing a potential triangle pattern near $240. If the price bounces from here and recaptures $260 again, it could increase to its record peak of $275 and eventually achieve new all-time highs. As the price would move through discovery price phases, the round resistances at $290 and $300 may come into focus before a potential measured move to $310. Alternatively, if the price falls below the key support of $230, this would invalidate the triangle and potentially trigger a broader bear market.

Source: SpreadEx Constellation Brands

Key Takeaways

Constellation Brands reported mixed second-quarter results, with comparable sales growth of 2.8%, but wine and spirits sales decreased 12% in value and 9.8% in volumes. Despite challenges in consumer spending, the company beat earnings forecasts through cost-cutting and grew beer sales in Modelo brands particularly. However, the share price fell after initial gains, possibly reflecting continued caution in consumer spending on higher-margin items.