Group 1: Constellation Brands - Constellation Brands is the top seller and importer of three major imported beers in the U.S.: Modelo, Pacifico, and Corona [3] - The company has faced recent sales weakness due to macroeconomic issues, but it generates sufficient earnings to support growing dividends, with a forward dividend yield of 2.37% [4][5] - Constellation has been increasing its dividend since 2015 and aims to save over $200 million annually by fiscal 2028, which is expected to lead to more earnings and dividend increases for shareholders [6] - Despite a decline in stock price, Constellation's beer business gained market share, making the current dip a potential buying opportunity [7] - The forward price-to-earnings multiple is currently at 13.6, with management guiding for adjusted earnings per share between $12.60 to $12.90 [8] Group 2: Home Depot - Home Depot is the world's largest home improvement retailer with 2,350 stores across multiple regions, and it has experienced soft sales recently [9] - The stock offers an attractive forward yield of 2.48%, and if interest rates decrease, the stock could surge to new highs [9][10] - Home Depot has a long-term growth trend supported by increasing household net worth, with a $10,000 investment 20 years ago now worth $107,000, or $176,000 with dividend reinvestment [11] - The company has paid dividends for 38 consecutive years, covering 61% of earnings in dividends, and recently raised its quarterly dividend by 2% to $2.30 [12] - Home Depot generates $162 billion in annual sales and targets a $1 trillion addressable market in home improvement, indicating strong growth potential [12]

Core Insights - Constellation Brands experienced a 2% decline in beer sales in the latest quarter, attributed to economic fears and the impact of immigration policies [1][4] - CEO Bill Newlands highlighted that Hispanic consumers are reducing spending due to concerns over immigration policies and potential job losses [2][3] - The company reported earnings and revenue that fell short of Wall Street estimates, affected by weaker beer demand and increased aluminum costs due to tariffs [4] Consumer Behavior - Hispanic consumers represent a significant portion of Constellation's customer base, accounting for approximately half of its beer sales in the U.S. [3] - The uncertainty surrounding consumer behavior is exacerbated by immigration enforcement actions, making it challenging for the company to predict future sales trends [2][3] Industry Context - Constellation Brands is not alone in facing weaker demand from Hispanic consumers, as other companies like Coca-Cola and Colgate-Palmolive have also reported similar trends [5] - Despite the challenges, Constellation Brands has maintained its full-year outlook, indicating confidence in achieving financial targets amid economic uncertainty [4]

Core Viewpoint - Constellation Brands, Inc. demonstrated resilience in its beer segment despite a slight dip in overall sales, allowing the company to reaffirm its full-year guidance amidst a challenging market [1][3]. Financial Performance - The company reported fiscal first-quarter earnings per share of $3.22, which was below the $3.30 consensus but above Bank of America’s estimate of $3.00, driven by stronger-than-expected beer gross margins and lower SG&A costs [2]. - Total sales were slightly below expectations due to softness in both beer and wine & spirits, but the company maintained its fiscal year guidance, which may raise skepticism given the weaker first-quarter trends [3]. Segment Analysis - The beer segment is expected to improve starting in the second quarter, aided by easier comparisons, although June scanner data indicated mid-single-digit declines [4]. - Depletions in the beer segment fell 2.6% year-over-year in the first quarter, slightly worse than Bank of America’s estimate but in line with consensus, while shipments declined by 3.3% [4]. Operational Insights - The quarter had one less selling day, negatively impacting shipment and depletion growth rates by more than 1%. No further selling day impacts are expected for the remainder of fiscal year 2026 [5]. - Gross margins in the beer segment exceeded forecasts at 53.1%, attributed to approximately $40 million in cost and operational efficiencies. Marketing spend was $201 million, lower than the estimated $220 million, and is expected to be concentrated in the first half of the fiscal year [5]. Wine & Spirits Performance - The Wine & Spirits segment underperformed with sales of $280.5 million, although operating losses of $6 million were better than anticipated [6]. Market Valuation - Bank of America analyst Peter T. Galbo maintained a Neutral rating on Constellation Brands with a price forecast of $180, reflecting a justified discount to their 5-year average due to ongoing challenges in the beer segment, including softer demand from Hispanic consumers and broader industry headwinds [6].

Part I – Financial Information [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) The company reported net sales of $2.52 billion and net income of $516.1 million for the quarter ended May 31, 2025, with total assets reaching $22.26 billion and liabilities at $14.73 billion [Consolidated Financial Statements Summary](index=7&type=section&id=Consolidated%20Financial%20Statements) Total assets increased to $22.26 billion as of May 31, 2025, with net income at $516.1 million and diluted EPS at $2.90, while operating cash flow was $637.2 million Consolidated Balance Sheet Summary (in millions) | Account | May 31, 2025 | February 28, 2025 | | :--- | :--- | :--- | | **Total Current Assets** | $3,941.3 | $3,716.4 | | **Total Assets** | $22,262.7 | $21,652.3 | | **Total Current Liabilities** | $3,694.1 | $4,035.2 | | **Total Liabilities** | $14,730.6 | $14,517.5 | | **Total Stockholders' Equity** | $7,532.1 | $7,134.8 | Consolidated Income Statement Summary (in millions, except per share data) | Account | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | **Net Sales** | $2,515.0 | $2,661.8 | | **Operating Income** | $713.8 | $941.6 | | **Net Income Attributable to CBI** | $516.1 | $877.0 | | **Diluted EPS** | $2.90 | $4.78 | Consolidated Cash Flow Summary (in millions) | Activity | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $637.2 | $690.5 | | **Net Cash used in Investing Activities** | ($196.1) | ($377.4) | | **Net Cash used in Financing Activities** | ($437.6) | ($393.0) | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed notes explain financial figures, covering acquisitions, divestitures, the 2025 Restructuring Initiative, debt financing, a new share repurchase program, and segment performance - In June 2024, the company acquired the Sea Smoke business, a luxury wine brand. On January 6, 2025, it sold the SVEDKA brand. Subsequently, on June 2, 2025, it sold a portion of its mainstream wine business for **$857.6 million** in net cash proceeds, which were used for debt repayment[28](index=28&type=chunk)[29](index=29&type=chunk)[34](index=34&type=chunk) - The company is implementing the "2025 Restructuring Initiative" to optimize performance, expecting to incur **$80-$100 million** in pre-tax costs. As of May 31, 2025, cumulative costs reached **$63.0 million**, with **$13.3 million** incurred in the current quarter[35](index=35&type=chunk)[36](index=36&type=chunk) - In April 2025, the Board authorized a new **$4.0 billion** share repurchase program. During the quarter, the company repurchased **1.63 million shares** for **$306.1 million**[82](index=82&type=chunk) Segment Performance - Q1 FY2026 vs Q1 FY2025 (in millions) | Segment | Metric | Q1 2026 | Q1 2025 | | :--- | :--- | :--- | :--- | | **Beer** | Net Sales | $2,234.5 | $2,272.8 | | | Comparable Operating Income | $873.4 | $923.0 | | **Wine and Spirits** | Net Sales | $280.5 | $389.0 | | | Comparable Operating Income (Loss) | ($6.0) | $59.7 | [Management's Discussion and Analysis (MD&A)](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses performance, strategic initiatives like the 2025 Restructuring Initiative and Wine & Spirits repositioning, noting a 6% decline in quarterly net sales and strong liquidity with a new $4.0 billion share repurchase program [Overview and Strategy](index=30&type=section&id=Overview%20and%20Strategy) The company's strategy emphasizes brand building, innovation, disciplined capital deployment, and operational efficiency, with a focus on Beer segment leadership, Wine and Spirits repositioning, and the 2025 Restructuring Initiative for cost savings - The Beer segment strategy focuses on upholding its leadership position in the U.S. beer market, increasing distribution for key brands, and continuing to invest in modular capacity additions[109](index=109&type=chunk) - The Wine and Spirits strategy is to reposition the business to a portfolio of exclusively higher-end brands to drive higher growth and margins, while expanding into international and direct-to-consumer (DTC) channels[110](index=110&type=chunk) - The 2025 Restructuring Initiative is expected to yield over **$200 million** in net annualized cost savings by Fiscal 2028, with estimated pre-tax costs of **$80-$100 million**[116](index=116&type=chunk) - A key recent strategic action was the June 2, 2025 divestiture of a portion of the wine and spirits business, primarily mainstream brands, for **$857.6 million** in net cash proceeds[117](index=117&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Q1 FY2026 saw consolidated net sales decrease 6% to $2.52 billion and operating income fall 24% to $713.8 million, driven by sales declines in both Beer and Wine & Spirits segments and impacted by impairment and restructuring costs Financial Highlights - Q1 FY2026 vs Q1 FY2025 (in millions, except percentages) | Metric | Q1 2026 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,515.0M | $2,661.8M | (6%) | | Operating Income | $713.8M | $941.6M | (24%) | | Net Income (CBI) | $516.1M | $877.0M | (41%) | | Diluted EPS (CBI) | $2.90 | $4.78 | (39%) | Beer Segment Performance - Q1 FY2026 vs Q1 FY2025 (in millions, except cases and percentages) | Metric | Q1 2026 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,234.5M | $2,272.8M | (2%) | | Shipments (cases) | 111.3M | 115.1M | (3.3%) | | Depletions | - | - | (2.6%) | Wine and Spirits Segment Performance - Q1 FY2026 vs Q1 FY2025 (in millions, except cases and percentages) | Metric | Q1 2026 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $280.5M | $389.0M | (28%) | | Shipments (cases) | 3.9M | 5.6M | (30.4%) | | Organic Shipments (cases) | 3.9M | 4.5M | (13.3%) | - Operating income was negatively impacted by **$96.1 million** in Comparable Adjustments, including a **$52.1 million** impairment on assets held for sale and **$13.3 million** in restructuring costs[132](index=132&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity from $637.2 million in operating cash flow, with total debt at $11.57 billion, and prioritizes capital allocation through a new $4.0 billion share repurchase program and quarterly dividends Summary of Cash Flows (in millions) | Activity | Q1 2026 | Q1 2025 | | :--- | :--- | :--- | | Operating Activities | $637.2 | $690.5 | | Investing Activities | ($196.1) | ($377.4) | | Financing Activities | ($437.6) | ($393.0) | - Total debt outstanding as of May 31, 2025, was **$11.57 billion**, a slight increase from the previous fiscal year-end[175](index=175&type=chunk) - A new **$4.0 billion** share repurchase program was authorized in April 2025, expiring in February 2028. The company expects to return **$4.0 billion** to shareholders over the next three fiscal years via this program[191](index=191&type=chunk)[192](index=192&type=chunk) - On July 1, 2025, the Board of Directors declared a quarterly cash dividend of **$1.02 per share** of Class A Stock[189](index=189&type=chunk) [Market Risk Disclosures](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages market risks from foreign currency, commodity prices, and interest rates using derivatives, with 79% of foreign currency and 73% of commodity exposures hedged for the remainder of Fiscal 2026 - The company is exposed to foreign currency risk (primarily MXN, CAD, NZD, EUR), commodity price risk (aluminum, corn, etc.), and interest rate risk[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) - As of May 31, 2025, **79%** of forecasted transactional foreign currency exposures and **73%** of commodity exposures for the remaining nine months of Fiscal 2026 were hedged[201](index=201&type=chunk)[202](index=202&type=chunk) Market Risk Sensitivity Analysis (as of May 31, 2025) | Risk Type | Hypothetical Change | Impact on Fair Value (in millions) | | :--- | :--- | :--- | | Foreign Currency Contracts | 10% Adverse Change | ($200.7) | | Fixed Interest Rate Debt | 1% Rate Increase | ($521.7) | [Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Management affirmed the effectiveness of disclosure controls and procedures as of May 31, 2025, noting the implementation of a new OneStream consolidation system that modified internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures are **effective**[207](index=207&type=chunk) - A new consolidation system, OneStream, was implemented during the quarter, resulting in changes to internal controls over financial reporting that will be monitored throughout Fiscal 2026[208](index=208&type=chunk) Part II – Other Information [Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) Three derivative complaints were filed against directors and officers in March, April, and June 2025, based on allegations similar to the *Meza v. Constellation Brands, Inc.* class action - Three derivative complaints were filed against directors and officers in March, April, and June 2025, related to allegations in the existing *Meza v. Constellation Brands, Inc.* class action lawsuit[212](index=212&type=chunk) [Share Repurchases](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company detailed its share repurchase activity, including a new $4.0 billion authorization in April 2025, with 1,634,718 shares repurchased for $306.1 million during the quarter Issuer Purchases of Equity Securities (Q1 FY2026) (in millions, except shares and price per share) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | April 2025 | 818,638 | $185.71 | ~$152.0 | | May 2025 | 816,080 | $188.75 | ~$154.1 | | **Total** | **1,634,718** | **$187.23** | **$306.1** | - In April 2025, the Board of Directors authorized a new repurchase program for up to **$4.0 billion** of common stock, which expires in February 2028[215](index=215&type=chunk)

Financial Data and Key Metrics Changes - The company affirmed its full-year beer revenue growth outlook despite industry weakness observed in May and June, indicating confidence in achieving guidance [10][12] - The first quarter was described as normal, with a depletion decline similar to the previous quarter, and the company expects sequential improvement as it moves into easier comparisons [11][12] - The impact of incremental tariffs is projected to be around $20 million, with a 20 basis point hit to margins, but the company believes it can still deliver margins in line with previous guidance [14] Business Line Data and Key Metrics Changes - The company is focused on maintaining strong brand health metrics and loyalty among consumers, particularly within the Hispanic demographic, which constitutes a significant portion of its business [19][20] - Marketing investments were higher in Q1 due to seasonality, with a focus on high-impact events to strengthen brand presence [27][28] - The introduction of new products like SunBrew and adjustments in pricing strategies are aimed at capturing market share in the high-end light beer segment [33][57] Market Data and Key Metrics Changes - The company reported high single-digit share gains in the market, indicating a positive trend in brand performance despite overall market challenges [21][52] - The competitive landscape has intensified, with increased marketing activities from competitors, particularly in the high-end light beer category [25][57] - The company is seeing a consistent percentage of alcohol in consumer baskets, despite overall basket sizes shrinking due to economic concerns [20] Company Strategy and Development Direction - The company is committed to controlling its controllables, focusing on distribution and price pack architecture to adapt to consumer spending behaviors [52][54] - There is an ongoing emphasis on innovation, with new product introductions expected to contribute significantly to growth [33] - The company is exploring opportunities for diversification in its portfolio, particularly in the non-alcoholic sector, which has gained traction since the last investor day [32] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic uncertainties, including inflation and unemployment, but expressed confidence in the brand's resilience and consumer loyalty [12][13] - The company anticipates a return to more normal consumer behavior as socioeconomic conditions improve, particularly for its Hispanic consumer base [40][41] - The rebuilding efforts following California wildfires are expected to provide a long-term tailwind, although short-term challenges remain due to macroeconomic factors [61][63] Other Important Information - The company has implemented a robust hedging policy to manage currency and commodity risks, particularly concerning the peso [47][49] - The management highlighted the importance of maintaining strong relationships with consumers and adapting to their changing needs in the current economic climate [20][54] Q&A Session Summary Question: Confidence in beer revenue growth outlook and margin guidance - Management confirmed confidence in the unchanged full-year beer revenue growth outlook, noting that the quarter was as expected despite consumer concerns [10][12] Question: Impact of socioeconomic factors on consumer behavior - Management indicated that while occasions for beer consumption have decreased, interest in beer remains strong among consumers, suggesting a potential return to normalcy [40][41] Question: Marketing strategy and competitive landscape - Management discussed increased marketing investments and the competitive landscape, emphasizing the strength of their brands and loyalty among consumers [25][27] Question: Pricing environment in beer - Management acknowledged additional price promotions in the market and indicated adjustments in their pricing strategy to capture share in the high-end light beer segment [57] Question: Rebuilding after California wildfires - Management noted that rebuilding efforts would create job opportunities and potentially boost beer consumption, with this upside factored into their guidance [61][63]

Financial Data and Key Metrics Changes - The company reported a significant amount of consumer concern that has continued from previous quarters into the current quarter, but the quarter was as expected [11] - The company affirmed its full-year beer revenue growth outlook and margin guidance despite some macroeconomic uncertainties [13][14] - The impact of incremental tariffs is expected to be approximately $20 million, with a 20 basis point hit to margins, but the company believes it can still deliver margins in line with previous guidance [14][15] Business Line Data and Key Metrics Changes - The company is seeing high single-digit share gains in the shelf, with strong brand loyalty among both Hispanic and general market consumers [20][21] - The introduction of new products like SunBrew is ahead of expectations, contributing to the growth profile [21][35] - Pacifico continues to be a strong brand, with 50% of its growth coming from outside California, indicating a broader market appeal [36] Market Data and Key Metrics Changes - The company is experiencing a decline in consumer occasions for beer consumption due to socioeconomic concerns, but interest in beer remains strong [40] - The pricing environment in the beer category is under pressure, with increased promotional activity observed in the market [58][60] - The company is focused on price pack architecture to address consumer concerns about inflation [56] Company Strategy and Development Direction - The company continues to invest in marketing, particularly in high-impact areas like sports, to build long-term brand success [27][28] - The focus remains on controlling controllables, including distribution and brand health metrics, to prepare for a return to normal consumer behavior [54][56] - The company is exploring diversification opportunities in its portfolio, particularly in the non-alcoholic sector, which has become a significant growth area [33][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the year, despite macroeconomic uncertainties and potential impacts from tariffs and unemployment [13][14] - The company anticipates a tailwind from rebuilding efforts in areas affected by natural disasters, although short-term challenges remain [63][65] - Management noted that consumer behavior may not revert to pre-COVID levels immediately, but interest in beer consumption remains [40] Other Important Information - The company has a robust hedging policy in place to manage currency and commodity risks, particularly regarding the peso [48][50] - The company is actively monitoring the competitive landscape and adjusting its strategies accordingly to maintain brand loyalty and market share [25][60] Q&A Session Summary Question: Confidence in unchanged full-year beer revenue growth outlook - Management acknowledged industry weakness but affirmed confidence in the outlook, citing easier comparisons as the summer progresses [12][14] Question: Impact of socioeconomic factors on Hispanic consumers - Management noted strong loyalty among Hispanic consumers and emphasized ongoing investments to support this demographic [19][20] Question: Marketing cadence and competitive landscape - Management highlighted increased marketing investments and strong brand health metrics, indicating a proactive approach to competition [27][28] Question: Portfolio diversification considerations - Management discussed ongoing innovation and the introduction of new products to attract younger consumers, while also considering diversification opportunities [33][35] Question: Pricing environment and promotional activity - Management confirmed increased promotional activity in the market and adjustments to pricing strategies to capture share in the high-end light beer sector [58][60] Question: California wildfires and rebuilding efforts - Management indicated that rebuilding efforts would provide a tailwind for growth, although short-term challenges remain due to macroeconomic factors [63][65]

Core Insights - Constellation Brands, Inc. reported first-quarter fiscal 2026 results with both sales and earnings missing expectations, primarily due to weak consumer demand influenced by socioeconomic factors [1][2][3] Financial Performance - Comparable earnings per share (EPS) for the quarter were $3.22, a 10% decline year over year, missing the consensus estimate of $3.38. Reported EPS was $2.90, down 39% year over year [2][6] - Net sales decreased by 5.5% year over year to $2.52 billion, also falling short of the consensus estimate of $2.57 billion [2][6] - The beer segment's sales fell 2% year over year to $2.23 billion, with a 3.3% decline in shipment volume attributed to socioeconomic headwinds [4][6] - Wine and spirits sales plummeted 28% year over year to $280.5 million, driven by a 30.4% decline in shipment volumes and an 8.1% dip in depletions [7][6] Margin Analysis - Comparable operating income was $810 million, down 11% from the prior year, reflecting challenges in both beer and wine & spirits segments [8] - Operating income for the beer segment fell 5% year over year to $873.4 million, with operating margin contracting by 150 basis points to 39.1% due to increased costs [9] - The wine and spirits segment reported an operating loss of $6 million compared to an operating income of $59.7 million in the previous year, with significant margin contraction [10] Financial Position - As of May 31, 2025, the company had cash and cash equivalents of $73.9 million, long-term debt of $9.8 billion, and total shareholders' equity of $7.3 billion [11] - Operating cash flow for the first quarter was $637.2 million, with adjusted free cash flow at $444.4 million [11][12] Future Outlook - The company forecasts operating cash flow of $2.7-$2.8 billion and free cash flow of $1.5-$1.6 billion for fiscal 2026, with planned capital expenditures of $1.2 billion [13] - Management anticipates organic net sales for fiscal 2026 to range from a decline of 2% to an increase of 1%, with the wine and spirits segment expected to decline by 17-20% [14] - Comparable EPS guidance for fiscal 2026 is set at $12.60-$12.90, with reported EPS expected to be $12.07-$12.37 [16][17]

Company Performance - Constellation Brands' stock is rising despite missing earnings expectations, likely due to maintained guidance [1] - Beer sales were expected to be weak [1] Macroeconomic Factors & Consumer Behavior - CEO suggests softer consumer demand is driven by "nonstructural socioeconomic factors," hinting at challenges for Hispanic American consumers [2] - Hispanic American consumers account for 50% of beer sales [2] - Trump 2.0% immigration policy is reportedly reducing social gatherings and increasing unemployment for Hispanics [3] - JP Morgan and Bernstein are highlighting a pullback in the Hispanic consumer base [3] Strategic Implications - The company needs to address the pullback in the Hispanic consumer base to avoid losing market share [3]

Core Viewpoint - Constellation Brands Inc (NYSE:STZ) shares are experiencing a 2.2% increase to $168.52, recovering from premarket losses despite missing fiscal first-quarter earnings and revenue expectations due to lower demand for alcoholic beverages and increased costs from aluminum tariffs [1] Group 1: Stock Performance - STZ is on track for its fourth consecutive daily gain, although it has recently faced monthly and quarterly losses, with a decline of 22.9% in 2025 and a five-year low of $159.35 marked on June 20 [2] - The stock has rebounded from its lows, but the 20-day moving average may limit today's gains [2] Group 2: Analyst Ratings - Analysts from Evercore ISI and Bernstein have reaffirmed their "outperform" ratings on STZ, indicating continued confidence in the stock despite recent challenges [1] Group 3: Options Activity - Options traders are exhibiting a notably bullish sentiment, as evidenced by a 50-day call/put volume ratio of 2.57, which is higher than 96% of readings from the past year [3] - Today's options activity shows 12,000 calls and 11,000 puts traded, which is five times the intraday average volume, with the most active contract being the weekly 7/3 175-strike call [4]

Financial Performance - Constellation Brands' fiscal first-quarter results fell short of analysts' expectations [1] Market Trends - Weak consumer demand was cited by the beverage giant's CEO [1]