Constellation Brands Q1 FY26 slides: revenue dips 6% while maintaining full-year outlook

Introduction & Market Context

Constellation Brands (NYSE:STZ) released its first quarter fiscal year 2026 earnings presentation on July 1, 2025, revealing a 6% decline in reported net sales while maintaining its full-year comparable EPS outlook. The alcoholic beverage giant’s stock reacted positively to the news, with shares rising 2.3% to close at $162.68 and continuing to gain slightly in after-hours trading.

The company faced headwinds across both its beer and wine segments during the quarter, with overall net sales dropping to $2.52 billion from $2.66 billion in the prior year period. Despite these challenges, management expressed confidence in the company’s full-year targets, maintaining its comparable EPS guidance of $12.60-$12.90.

Quarterly Performance Highlights

Constellation’s first quarter results showed pressure across both business segments. Enterprise-wide, the company reported a 6% decline in net sales (4% organic) and a 24% drop in operating income (11% comparable). Net income attributable to Constellation fell 41% to $516.1 million, with reported EPS of $2.90 compared to $4.80 in the prior year period.

As shown in the following comprehensive financial summary, the company maintained strong cash flow generation despite the top and bottom-line challenges:

The Beer business, which includes popular brands like Modelo, Corona, and Pacifico, saw net sales decline 2.6% to $2.23 billion, with operating income falling 5% to $873.4 million. Operating margin contracted 150 basis points year-over-year to 39.1%, though it remains robust compared to industry standards.

The Wine and Spirits segment experienced more significant challenges, with net sales declining 28% (21% organic) to $280.5 million. More concerning was the segment’s swing to an operating loss of $6 million, compared to a $59.7 million profit in the prior year period, resulting in an operating margin contraction from 15.3% to -2.1%.

Beer Business Performance

Constellation’s beer portfolio showed mixed performance during the quarter. While flagship brands Modelo Especial and Corona Extra declined approximately 4% and 7% respectively, Pacifico delivered strong 13% growth. The Modelo Chelada brands also faced challenges with a 3% decline.

The following chart illustrates the drivers behind the Beer segment’s sales performance:

Volume declines of $76 million were partially offset by positive price/mix contributions of $37 million, resulting in the overall 2.6% net sales decline. Operating income for the Beer business was impacted by several factors, as shown in this breakdown:

Despite the quarterly challenges, management highlighted several strategic initiatives and achievements in the Beer business, including Modelo’s position as the #1 beer in dollar sales among brands launched within the last year, and Corona Non-Alcoholic’s status as the #2 dollar share gainer in the non-alcoholic beer segment. The company also achieved over $40 million in supply chain efficiency benefits during the quarter.

Wine & Spirits Transformation

Constellation’s Wine and Spirits business is undergoing significant transformation, with the company closing its previously announced 2025 Wine Divestitures transaction in June. This strategic shift toward premium offerings has created near-term disruption, as evidenced by the segment’s operating loss in the quarter.

The following chart breaks down the factors driving the Wine and Spirits segment’s sales decline:

The divestiture of brands reduced sales by $36 million, while volume declines accounted for $53 million and negative price/mix contributed another $19 million to the overall sales drop. Operating income was severely impacted, swinging from a $60 million profit to a $6 million loss:

Despite these challenges, management is maintaining its full-year outlook for the Wine and Spirits business, projecting organic net sales to decline 17-20% and organic operating income to decline 97-100%, reflecting the significant portfolio transformation underway.

Capital Allocation & Cash Flow

Constellation continues to generate strong cash flow and return capital to shareholders despite the operational challenges. In the first quarter, the company:

• Maintained its net leverage ratio at the target of approximately 3.0X
• Declared a dividend of $1.02 per Class A share, totaling $182 million
• Executed $306 million in share repurchases during the quarter, with $381 million year-to-date through June
• Generated operating cash flow of $637 million and free cash flow of $444 million
• Invested $193 million in capital expenditures, primarily for Beer brewing capacity additions

The company remains on track with its planned modular brewery capacity additions of +7 million hectoliters in FY26-FY28, which will bring total anticipated capacity to approximately 55 million hectoliters by FY28.

Forward Outlook

Despite the first quarter challenges, Constellation maintained its full-year fiscal 2026 guidance across key metrics. The company updated its reported EPS outlook to $12.07-$12.37 while maintaining its comparable EPS outlook of $12.60-$12.90.

The following table provides a comprehensive view of the company’s first quarter results compared to its full-year outlook:

For the Beer business, Constellation continues to project:

• Net sales growth of 0-3%
• Operating income growth of 0-2%
• Operating margin of approximately 39-40%
• Capital expenditures of approximately $1.0 billion

For the Wine and Spirits business, the company maintains its outlook of:

• Organic net sales decline of 17-20%
• Organic operating income decline of 97-100%
• Capital expenditures of approximately $0.2 billion

The company’s overall cash flow targets remain unchanged at $2.7-2.8 billion in operating cash flow and $1.5-1.6 billion in free cash flow for the fiscal year.

Management’s decision to maintain full-year guidance despite first quarter challenges suggests confidence in improvement during the remaining quarters, potentially supported by the historical shipment and depletion patterns illustrated in the following chart:

Constellation Brands continues to navigate a challenging operating environment while executing its strategic transformation toward premium offerings in both the Beer and Wine & Spirits segments. While near-term results show pressure on both top and bottom lines, the company’s strong cash flow generation and capital return to shareholders demonstrate financial resilience amid this transition period.

Full presentation:

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.