Constellation Brands Maintains Comparable Earnings Per Share Outlook

Image Source: Constellation Brands

By Brian Nelson, CFA

On July 1, beer, wine and spirits producer Constellation Brands (STZ) reported disappointing first quarter fiscal 2026 results with revenue and non-GAAP earnings per share missing the consensus forecast. Comparable net sales dropped 6%, while comparable organic net sales fell 4%. Comparable operating income tumbled 11%, while comparable net income attributable to the company fell 12%. Comparable adjusted earnings before interest and taxes fell 13%, while comparable diluted net income per share dropped 10%, to $3.22.

Management had the following to say about the results:

While we continued to face softer consumer demand largely driven by what we believe to be non-structural socioeconomic factors, our teams remain focused on executing the key initiatives that underpinned the outlook we recently provided for fiscals 2026 to 2028. Against that backdrop, we are pleased to continue to lead the U.S. Beer industry in dollar share gains, to have fully repositioned our Wine and Spirits portfolio in higher-growth and higher-margin segments, and to consistently deliver against our capital allocation priorities.

Our cash flow generation enabled us to remain at our ~3.0x comparable net leverage and ~30% dividend payout ratio targets, while continuing to advance our modular brewery investments and returning over $300 million to shareholders in share repurchases in the first quarter of fiscal 2026. As we look to the remainder of the year, our annual operating cash flow and free cash flow expectations are unchanged, and we remain committed to deploying that cash in-line with our balanced and consistent capital allocation priorities.

ESG Matters

Here are some highlights from Constellation Brands’ ESG Impact Report:

We surpassed our target to restore 5 billion gallons of our water withdrawals back to local watersheds near our production facilities between fiscal year 2023 and fiscal year 2025. We also worked with local authorities and community members in multiple cities neighboring our breweries in Nava, Coahuila, Mexico, and Obregón, Sonora, Mexico, to build infrastructure that enhanced residents’ access to quality water. Helping to maintain the health of the watersheds in communities where we operate remains an important element of our overall water stewardship strategy and ambition to help restore an amount of water equivalent to what we use in our brewery operations.

To that end, by the end of fiscal year 2028, we aim to reduce our ratio of water consumed per product produced across our brewery network relative to our fiscal year 2025 baseline; help restore key watersheds near our brewery operations as we seek to restore the same amount of water as we use in those operations; help improve water accessibility in areas where we operate; and work in collaboration with key suppliers to help support effective water management across our supply chain.

We also continue to make progress in managing our greenhouse gas (GHG) footprint through the reduction of Scope 1 emissions from our operations relative to fiscal year 2023. That said, we did not achieve our GHG Scope 1 and Scope 2 emissions reduction target relative to fiscal year 2020, primarily due to increased production to meet the growth in consumer demand of our beer brands, and due to limited access to cost-effective renewable energy and other resource constraints. However, our energy management efforts helped reduce the energy used per case of beer produced by 12% relative to our fiscal year 2023 baseline, all while managing increased production.

We are pleased to share…a number of initiatives our team has undertaken to help improve our management of our Scope 1 and Scope 2 emissions and to enhance our data collection and reporting capabilities. As such, we are targeting reducing our Scope 1 and Scope 2 emissions by approximately 10-20% by the end of the fiscal year 2028 in our Nava and Obregón brewery operations. Additionally, we continue our efforts in collecting supplier emissions data and collaborating with key suppliers to better understand opportunities to help reduce Scope 3 emissions across the supply chain.

Finally, we remain committed to reducing our operational waste and maintaining our TRUE Zero Waste certifications for our Nava and Obregón breweries, and collaborating with key suppliers to enhance our company’s use of circular packaging.

And within our communities, our efforts in partnership with on-the-ground nonprofits have helped more than 33,000 individuals and families over the past two calendar years, through our support of housing empowerment, financial literacy, job training, and career development programs. We believe that by creating these opportunities, we contribute to sustainable economic development for all, ensuring that both communities and businesses can prosper together.

Concluding Thoughts

In the first quarter, Constellation Brands’ operating cash flow fell 8%, to $637 million, while free cash flow expanded 41%, to $444 million, thanks in part to the timing of brewery capacity investments in fiscal 2026. The company updated its fiscal 2026 reported earnings per share outlook to $12.07-$12.37 and maintained its comparable earnings per share outlook of $12.60-$12.90. It also maintained its fiscal 2026 operating cash flow target of $2.7-$2.8 billion and free cash flow expectation of $1.5-$1.6 billion. Shares yield 2.4% at the time of this writing.

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