Earnings call: Constellation Brands reports solid Q2, anticipates growth despite challenges

Constellation Brands (NYSE:) reported a strong performance in Q2 of fiscal year 2024, with their beer business leading the growth. Despite some challenges faced by their mainstream brands, the company remains confident in their long-term growth prospects and has raised their fiscal ’24 reported EPS guidance. They will be hosting an Investor Day in November to provide further details on their medium and long-term ambitions.

Key takeaways from the call:

• The beer business saw a net sales increase of 12% ($253 million) due to volume growth of 8.7% and favorable pricing, with Modelo Especial achieving double-digit volume growth.
• The wine and spirits business experienced an 11% decrease in organic net sales, driven by the underperformance of mainstream brands Woodbridge and SVEDKA. Plans to renovate these brands are underway.
• The company raised its fiscal ’24 reported EPS guidance to $9.60-$9.80 and comparable EPS guidance to $12-$12.20.
• A dividend of $0.89 a share was announced, resulting in approximately $163 million returned to shareholders for the quarter.
• The company plans to remain disciplined in driving long-term profitable growth and enhanced shareholder value.

Constellation Brands (NYSE:STZ) reported a solid performance in their Q2 fiscal year 2024, primarily driven by strong growth in their beer business. Modelo Especial, a key brand in their portfolio, led the way by achieving double-digit volume growth. The broader Modelo brand family also experienced impressive results.

However, the company’s wine and spirits business faced some headwinds. Mainstream brands, namely Woodbridge and SVEDKA, underperformed, leading to an 11% decrease in organic net sales in this segment. The company is responding with plans to renovate these brands.

Despite these challenges, Constellation Brands remains optimistic about their growth prospects. They expect their beer business to continue growing, driven by consumer trends and brand awareness. They also anticipate growth in their wine and spirits business in the second half of fiscal year 2024.

The company announced a dividend of $0.89 a share, which returned approximately $163 million to shareholders for the quarter. They also raised their fiscal ’24 reported EPS guidance to between $9.60 and $9.80 and comparable EPS guidance to between $12 and $12.20.

While addressing various factors such as seasonality, pricing, supply chain volume, and the potential impact of student loan repayments on consumer behavior, the company expressed confidence in their brands and their ability to maintain and meet increasing demand.

The company also highlighted the performance of its sub-brand Oro in the Hispanic community, especially in large Hispanic markets. They announced that additional SKUs will be launched next year to accelerate the brand’s growth.

Despite headwinds related to price increases and prebuild from last year, the company expects a strong back half of the year. They also mentioned that their cost savings and efficiency initiatives are multiyear in nature and focus on areas like supply chain, procurement, operations, and marketing spend.

Constellation Brands has scheduled an Investor Day on November 2nd to provide more details on their medium and long-term growth prospects.

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