Constellation Brands rallies after the beer business does the heavy lifting in FQ1

Constellation Brands (NYSE:STZ) traded higher in early action on Wednesday after posting a mixed FQ1 earnings report.

The company reported revenue rose 6.0% year-over-year during the quarter to $2.66 billion. Comparable EPS of $3.57 was disclosed, vs. $3.45 consensus and $3.04 a year ago.

Constellation (STZ) said its beer business achieved strong high single-digit net sales growth and double-digit operating income growth, primarily driven by continued volume growth and cost savings initiatives. Depletion volume had strong growth of 6.4% during the quarter, excluding the impact of the craft beer divestitures in fiscal 2024. The increase was driven by ongoing high demand across most of the portfolio, led by growth in Modelo Especial of approximately 11%, Pacifico of approximately 21%, and the Modelo Chelada brands of over 5%; Corona Extra depletions declined over 1%, but the brand is still expected to deliver depletion growth for fiscal 2025. Operating margin increased 260 basis points for the beer business to 40.6% of sales, supported by fixed cost absorption driven by net sales growth, benefits from ongoing cost saving initiatives, and timing and efficiencies in marketing investments partially offset by unfavorable foreign currency and incremental depreciation from brewery capacity expansions.

The company's wine and spirits net sales declined 7% driven by a 5.1% decrease in shipment volumes, as the business continues to face challenging market conditions, primarily in the U.S. wholesale channel across most price segments in the wine category. The wine and spirits business initiated commercial and operational actions expected to drive net sales and operating income improvements and affirms fiscal 2025 outlook.

CFO update: "The consistent top-line growth and cost savings actions of our Beer Business drove strong operating income and cash flow generation in Q1. In line with our disciplined and balanced capital allocation priorities from the last five years: we lowered our net leverage ratio to 3.1x and continue to expect to achieve our ~3.0x target this fiscal year; returned cash to shareholders through our dividend and $200 million of share repurchases in Q1; continued to advance our brewery investments in our Beer Business; and guidance. All in, we continue to make progress and remain focused on our fiscal '25 outlook and executed a tuck-in acquisition, bringing a mix and asset utilization benefits for our wine portfolio."

Looking ahead, Constellation Brands (STZ) sees FY25 EPS of $13.50 to $13.80 vs. the consensus estimate of $13.65. The company expects operating cash flow of $2.8 billion to $3.0 billion, vs. $3.1 billion consensus.

Shares of Constellation Brands (STZ) were up 2.73% premarket to $266.02. The beverage stock is up more than 9% on a year-to-date basis.