Constellation Brands stock rises as beer sales demand faces sustainability question

Constellation Brands (STZ) stock rose Wednesday after beer makers Corona and Modelo beat Wall Street’s profit expectations.

Although sales rose during the quarter, investors questioned whether that strength reflected retailers’ inventory restocking rather than a true recovery in consumer demand.

Beer sales increased 5% in the quarter to $2.47 billion. However, the company said it had shipped “slightly more cases” of beer to distributors looking to replenish stocks that were depleted or sold out at retail outlets, suggesting consumer demand may still be sluggish.

In the second quarter, Constellation Brands reported net revenue of $2.63 billion, above analysts’ expectations of $2.54 billion, according to consensus data from S&P Global Market Intelligence. Adjusted earnings per share of $3.74 also beat estimates of $3.55.

“We are significantly outperforming the industry and seeing marketing-driven green shoots across the board,” said Nicholas Fink, CEO of Constellation Brands, who took over as CEO earlier this year. “Finally, our inventory levels are healthy. We spent much of the first half replenishing distributor inventory levels, and while there will always be month-to-month variability, September’s depletions are moving in the right direction.”

Constellation Brands said off-premises sales, which include drinks sold at grocery and convenience stores, during the World Cup “were lower than industry expectations,” while on-premises sales at restaurants and bars increased.

Sales of Constellation Brands’ best-selling beers, Modelo Especial and Corona Extra, declined, although this was partially offset by growth in smaller brands such as Pacifico, Victoria and Modelo Chelada.

Sales in the Wine & Spirits category increased 17%, driven by a 15.4% increase in shipping volumes.

The company reaffirmed its full-year adjusted earnings per share guidance of between $11.20 and $11.90. Beer sales continue to fall 1% to a 1% increase, wine sales 1% to a 1% increase and corporate sales 1% to a 1% increase.

“If the positive trends we saw in September continue, we expect to land at the high end of that range,” Fink said.

Constellation Brands also announced that it has acquired ready-to-drink cocktail brand SpikedAde for $75 million upfront and payments of up to $278 million over the next five years based on the brand’s future performance.

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