Constellation Brands(STZ) - 2026 Q2 - Quarterly Report

FORM 10-Q Filing Information This section details the filing specifics of the Quarterly Report on Form 10-Q, including the reporting period and outstanding shares - Constellation Brands, Inc. filed its Quarterly Report on Form 10-Q for the period ended August 31, 2025[2] - As of September 30, 2025, there were 175,013,336 shares of Class A Common Stock and 27,167 shares of Class 1 Common Stock outstanding[6] - The registrant is classified as a Large Accelerated Filer[4] Defined Terms This section provides definitions for key terms and abbreviations used throughout the Form 10-Q, including financial measures, company initiatives (e.g., 2025 Restructuring Initiative, Wine Divestitures), and operational concepts (e.g., Depletions, DTC) Part I – Financial Information This part presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of comprehensive income (loss), statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes explaining the basis of presentation, significant transactions, and accounting policies Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time, highlighting key changes Consolidated Balance Sheet Highlights (in millions) | Item | August 31, 2025 | February 28, 2025 | Change | | :--------------------------------------- | :---------------- | :------------------ | :------- | | Total assets | $21,419.4 | $21,652.3 | $(232.9) | | Total liabilities | $13,633.1 | $14,517.5 | $(884.4) | | Total stockholders' equity | $7,786.3 | $7,134.8 | $651.5 | - Current assets decreased from $3,716.4 million to $2,878.9 million, primarily due to the divestiture of assets held for sale (from $913.5 million to $0)[19] - Property, plant, and equipment, net, increased from $7,409.8 million to $8,002.2 million[19] Consolidated Statements of Comprehensive Income (Loss) This section details the company's financial performance over periods, including net sales, operating income, and net income Consolidated Statements of Comprehensive Income (Loss) Highlights (in millions, except per share data) | Item | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | | :--------------------------------------- | :---------------------------- | :---------------------------- | :------------------------------ | :------------------------------ | | Net sales | $4,996.0 | $5,580.7 | $2,481.0 | $2,918.9 | | Operating income (loss) | $1,587.8 | $(287.8) | $874.0 | $(1,229.4) | | Net income (loss) attributable to CBI | $982.1 | $(322.0) | $466.0 | $(1,199.0) | | Diluted net income (loss) per common share attributable to CBI | $5.55 | $(1.77) | $2.65 | $(6.59) | - Operating income and net income attributable to CBI significantly improved year-over-year, primarily due to the absence of a $2,250.0 million goodwill impairment charge recorded in the prior year (Six Months and Three Months Ended August 31, 2024)[22] - Net sales decreased by 10.5% for the six months and 15.0% for the three months ended August 31, 2025, compared to the prior year[22] Consolidated Statements of Changes in Stockholders' Equity This section outlines the changes in the company's equity accounts, including impacts from net income, share repurchases, and dividends Changes in Stockholders' Equity (in millions) | Item | Balance at Feb 28, 2025 | Balance at Aug 31, 2025 | Change | | :--------------------------------------- | :---------------------- | :---------------------- | :------- | | Total CBI stockholders' equity | $6,882.0 | $7,500.4 | $618.4 | | Noncontrolling interests | $252.8 | $285.9 | $33.1 | | Total stockholders' equity | $7,134.8 | $7,786.3 | $651.5 | - The increase in total stockholders' equity was driven by net income of $982.1 million and positive other comprehensive income, partially offset by $604.0 million in share repurchases and $360.0 million in dividends declared during the six months ended August 31, 2025[25] Consolidated Statements of Cash Flows This section reports the cash generated and used by operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows (Six Months Ended August 31, in millions) | Activity | 2025 | 2024 | Change | | :--------------------------------------- | :-------- | :-------- | :-------- | | Net cash provided by (used in) operating activities | $1,489.3 | $1,872.3 | $(383.0) | | Net cash provided by (used in) investing activities | $464.8 | $(857.6) | $1,322.4 | | Net cash provided by (used in) financing activities | $(1,953.1)| $(1,104.0)| $(849.1) | | Net increase (decrease) in cash and cash equivalents | $3.9 | $(87.8) | $91.7 | - Net cash provided by operating activities decreased by $383.0 million, largely due to changes in operating assets and liabilities, despite higher net income[30][226] - Investing activities shifted from a net use of cash to a net provision of cash, primarily driven by $851.1 million in proceeds from the sale of businesses (2025 Wine Divestitures) and reduced capital expenditures[30][227] - Financing activities used significantly more cash, primarily due to increased principal payments of long-term debt ($902.1 million) and purchases of treasury stock ($604.0 million)[32][228] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. Basis of Presentation This note describes the accounting principles and conventions used in preparing the interim financial statements - The financial statements are unaudited and prepared in accordance with SEC rules for quarterly reporting, reflecting all necessary normal recurring adjustments[33] - Interim results are not necessarily indicative of annual results[33] 2. Acquisitions and Divestitures This note details significant business acquisitions and divestitures, including their financial impacts and proceeds - Acquired Sea Smoke, a luxury wine business, for $158.7 million in June 2024, including goodwill, inventory, and a trademark[34] - Completed 2025 Wine Divestitures on June 2, 2025, selling mainstream wine brands for $846.5 million in net cash proceeds, resulting in a $15.7 million loss on sale. Proceeds were used for debt repayment[35] - Sold the SVEDKA brand and related assets on January 6, 2025, with proceeds used for general corporate purposes, including share repurchases, capital expenditures, and debt repayment[36] Assets Held for Sale (February 28, 2025, in millions) | Asset Category | Amount | | :--------------------------------------- | :----- | | Inventories | $788.7 | | Property, plant, and equipment | $474.4 | | Intangible assets | $127.9 | | Less: Asset impairment | $(478.0)| | Total Assets held for sale | $913.5| 3. Restructuring This note outlines the company's restructuring initiatives, including estimated costs and expected savings - The 2025 Restructuring Initiative is an enterprise-wide cost savings and restructuring effort expected to be largely completed within Fiscal 2026[39] - Estimated cumulative pre-tax costs for the initiative are $80 million to $100 million, with net annualized cost savings expected to be fully realized by Fiscal 2028, exceeding $200 million[39][142] Pre-tax Restructuring Costs Incurred (in millions) | Item | Six Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2025 | | :--------------------------------------- | :---------------------------- | :------------------------------ | | Consulting services | $21.5 | $8.2 | | Other costs | $0.1 | $0.1 | | Total | $21.6 | $8.3 | Cumulative Pre-tax Restructuring Costs (as of August 31, 2025, in millions) | Item | Amount | Percent of Total Costs | | :--------------------------------------- | :----- | :--------------------- | | Employee termination | $46.9 | 66% | | Consulting services | $24.3 | 34% | | Other costs | $0.1 | 0% | | Total | $71.3| 100% | 4. Inventories This note provides details on the composition and valuation methods of the company's inventory - Inventories are stated at the lower of cost (primarily FIFO method) or net realizable value[43] Inventories (in millions) | Category | August 31, 2025 | February 28, 2025 | | :--------------------------------------- | :---------------- | :------------------ | | Raw materials and supplies | $216.2 | $230.2 | | In-process inventories | $499.4 | $540.9 | | Finished case goods | $724.1 | $666.1 | | Total Inventories | $1,439.7 | $1,437.2 | 5. Prepaid Expenses and Other This note details the components of prepaid expenses and other current assets Prepaid Expenses and Other (in millions) | Category | August 31, 2025 | February 28, 2025 | | :--------------------------------------- | :---------------- | :------------------ | | Value added taxes receivable | $278.4 | $241.3 | | Prepaid excise and sales taxes | $157.1 | $150.4 | | Derivative assets | $131.1 | $67.2 | | Prepaid advertising | $30.5 | $16.6 | | Prepaid insurance | $22.0 | $9.7 | | Other | $80.5 | $75.9 | | Total | $699.6 | $561.1 | - Total prepaid expenses and other increased by $138.5 million, primarily driven by a $63.9 million increase in derivative assets and a $37.1 million increase in value added taxes receivable[44] 6. Derivative Instruments This note describes the company's use of derivative instruments for managing market risks and their notional values - The company uses derivative instruments (foreign currency, commodity, net investment hedges) to manage market risks and reduce volatility, not for trading or speculative purposes[255] Aggregate Notional Value of Outstanding Derivative Instruments (in millions) | Type | August 31, 2025 | February 28, 2025 | | :--------------------------------------- | :---------------- | :------------------ | | Foreign currency contracts (hedging) | $2,776.6 | $2,843.6 | | Pre-issuance hedge contracts (hedging) | $0 | $275.0 | | Net investment hedge contracts (hedging) | $145.5 | $0 | | Foreign currency contracts (non-hedging) | $487.2 | $378.2 | | Commodity derivative contracts (non-hedging)| $327.1 | $322.1 | - In April 2025, cross-currency swaps were entered into and designated as net investment hedges to protect against foreign currency exchange rate fluctuations in non-U.S. operations[48] - The company expects $66.4 million of net gains (net of income tax effect) from cash flow hedges to be reclassified from AOCI to results of operations within the next 12 months[54] 7. Fair Value of Financial Instruments This note explains the fair value hierarchy and provides fair value measurements for financial instruments - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs). Derivative instruments are primarily Level 2[56][57][58] Long-term Debt Carrying Amount vs. Fair Value (in millions) | Date | Carrying Amount | Estimated Fair Value | | :--------------------------------------- | :---------------- | :------------------- | | August 31, 2025 | $10,292.4 | $9,677.9 | | February 28, 2025 | $10,691.0 | $9,999.0 | - For the six months ended August 31, 2025, total losses from nonrecurring fair value measurements were $53.6 million, including $52.1 million for assets held for sale and related net assets, and $1.5 million for equity method investments[64] - A $2,250.0 million goodwill impairment was recognized in the Wine and Spirits reporting unit for the six months ended August 31, 2024, due to negative market trends[64][66][67] 8. Goodwill This note details the carrying amount of goodwill by segment and any impairment charges recognized Goodwill Carrying Amount by Segment (in millions) | Segment | February 29, 2024 | February 28, 2025 | August 31, 2025 | | :--------------------------------------- | :---------------- | :---------------- | :---------------- | | Beer | $5,238.2 | $5,126.8 | $5,179.3 | | Wine and Spirits | $2,742.1 | $0 | $0 | | Consolidated | $7,980.3 | $5,126.8 | $5,179.3 | - The Wine and Spirits segment's goodwill was written down to zero in Fiscal 2025 due to goodwill impairments resulting from negative trends in the U.S. wholesale market and declines in mainstream and premium wine brands[71] - Goodwill for the Beer segment increased by $52.5 million due to foreign currency translation adjustments[70] 9. Intangible Assets This note provides a breakdown of amortizable and nonamortizable intangible assets Intangible Assets (Net Carrying Amount, in millions) | Category | August 31, 2025 | February 28, 2025 | | :--------------------------------------- | :---------------- | :------------------ | | Amortizable intangible assets | $14.5 | $15.2 | | Nonamortizable intangible assets (Trademarks)| $2,518.9 | $2,517.1 | | Total intangible assets | $2,533.4 | $2,532.3 | - Trademarks constitute the vast majority of nonamortizable intangible assets[72] - No costs were incurred to renew or extend the term of acquired intangible assets during the reported periods[72] 10. Other Assets This note details the various components categorized as other assets, including equity method investments and derivative assets Other Assets (in millions) | Category | August 31, 2025 | February 28, 2025 | | :--------------------------------------- | :---------------- | :------------------ | | Operating lease right-of-use asset | $606.3 | $545.7 | | Income taxes receivable | $153.3 | $135.5 | | Equity method investments | $124.8 | $124.5 | | Derivative assets | $113.6 | $41.6 | | Other investments in debt and equity securities | $62.5 | $60.3 | | Exchangeable Shares | $21.2 | $21.2 | | Other | $155.5 | $132.9 | | Total | $1,237.2 | $1,061.7 | - Total other assets increased by $175.5 million, primarily due to increases in operating lease right-of-use assets and derivative assets[73] - Certain equity method investments and Exchangeable Shares were evaluated for impairment and written down due to business underperformance and declining share prices, respectively[69][75][77] - A net gain of $83.3 million was recognized in connection with Exchangeable Shares for the six months ended August 31, 2024, following the conversion of Canopy common shares[77][152] 11. Borrowings This note provides information on the company's short-term and long-term debt, including refinancing activities Borrowings (in millions) | Category | August 31, 2025 | February 28, 2025 | | :--------------------------------------- | :---------------- | :------------------ | | Short-term borrowings | $252.5 | $806.7 | | Long-term debt (including current maturities)| $10,292.4 | $10,691.0 | | Total Borrowings | $10,544.9 | $11,497.7 | - Total debt outstanding decreased by $952.8 million from February 28, 2025, to August 31, 2025[229] - The company refinanced its $2.25 billion revolving credit facility (2025 Credit Agreement) and entered into a new $500.0 million delayed draw term loan facility (2025 Term Credit Agreement) in April and May 2025, respectively[79][80][231][232] - Repaid $900.0 million in senior notes (4.75% December 2015 and 5.00% February 2023) using proceeds from the 2025 Wine Divestitures and cash on hand, while issuing $500.0 million of new 4.80% May 2025 Senior Notes[84][86][233][234] - Remaining borrowing capacity under the revolving credit facility was $1,986.0 million as of August 31, 2025[238] 12. Income Taxes This note explains the effective tax rates and significant factors influencing the company's income tax provision Effective Tax Rate | Period | August 31, 2025 | August 31, 2024 | | :--------------------------------------- | :---------------- | :---------------- | | Six Months Ended | 27.6% (expense) | 30.0% (benefit) | | Three Months Ended | 37.9% (expense) | 11.4% (benefit) | - The effective tax rate for the six and three months ended August 31, 2025, was higher than the federal statutory rate of 21%, largely due to changes in valuation allowances, tax legislation updates, partially offset by benefits from prior tax examinations and lower foreign effective tax rates[89] - The OB3 Act, signed into law on July 4, 2025, is expected to have a negative impact on the Fiscal 2026 effective tax rate, primarily due to changes in the limitation on interest expense deductibility[92][93] - The company expects its reported effective tax rate for Fiscal 2026 to be in the range of 17% to 19%, inclusive of the OB3 Act and Pillar Two impacts[217] 13. Stockholders' Equity This note details changes in stockholders' equity, including share repurchase programs and dividends - In April 2025, the Board of Directors authorized a new $4.0 billion share repurchase program (2025 Authorization) expiring in February 2028[99][246] Share Repurchases under 2025 Authorization (Six Months Ended August 31, 2025) | Item | Dollar Value of Shares Repurchased (millions) | Number of Shares Repurchased | | :--------------------------------------- | :---------------------------- | :--------------------------- | | Class A Stock | $604.0 | 3,375,602 | - As of August 31, 2025, $3,396.0 million remains available for future share repurchases under the 2025 Authorization[100][246] 14. Net Income (Loss) Per Common Share Attributable to CBI This note presents the calculation of basic and diluted net income (loss) per common share attributable to CBI Net Income (Loss) Per Common Share Attributable to CBI (in millions, except per share data) | Item | Six Months Ended Aug 31, 2025 | Six Months Ended Aug 31, 2024 | Three Months Ended Aug 31, 2025 | Three Months Ended Aug 31, 2024 | | :--------------------------------------- | :---------------------------- | :---------------------------- | :------------------------------ | :------------------------------ | | Net income (loss) attributable to CBI | $982.1 | $(322.0) | $466.0 | $(1,199.0) | | Weighted average common shares outstanding – diluted | 176.957 | 182.356 | 175.938 | 181.947 | | Net income (loss) per common share attributable to CBI – diluted | $5.55 | $(1.77) | $2.65 | $(6.59) | - Diluted EPS significantly improved from a loss of $(1.77) to a gain of $5.55 for the six months ended August 31, 2025, reflecting the turnaround in net income[101] 15. Comprehensive Income (Loss) Attributable to CBI This note provides a breakdown of comprehensive income (loss) and accumulated other comprehensive income (loss) Comprehensive Income (Loss) Attributable to CBI (in millions) | Period | August 31, 2025 | August 31, 2024 | | :--------------------------------------- | :---------------- | :---------------- | | Six Months Ended | $1,552.5 | $(1,125.8) | | Three Months Ended | $685.7 | $(1,993.8) | - The significant positive shift in comprehensive income for 2025 periods was largely driven by net income and positive foreign currency translation adjustments, contrasting with substantial losses in the prior year[102][105] Accumulated Other Comprehensive Income (Loss), Net of Tax Effect (in millions) | Component | February 28, 2025 | August 31, 2025 | | :--------------------------------------- | :---------------- | :---------------- | | Foreign Currency Translation Adjustments | $(683.8) | $(275.5) | | Unrealized Net Gain (Loss) on Derivative Instruments | $21.8 | $185.1 | | Pension/Postretirement Adjustments | $(0.4) | $(0.5) | | Share of OCI of Equity Method Investments| $(0.3) | $(1.4) | | Total Accumulated Other Comprehensive Income (Loss) | $(662.7) | $(92.3) | 16. Business Segment Information This note presents financial data disaggregated by the company's operating segments: Beer, Wine and Spirits, and Corporate Operations - The company reports operating results in three segments: Beer, Wine and Spirits, and Corporate Operations and Other[108][130] Net Sales by Segment (Six Months Ended August 31, in millions) | Segment | 2026 | 2025 | Change ($) | Change (%) | | :--------------------------------------- | :-------- | :-------- | :--------- | :--------- | | Beer | $4,579.5 | $4,803.0 | $(223.5) | -4.6% | | Wine and Spirits | $416.5 | $777.7 | $(361.2) | -46.4% | | Consolidated | $4,996.0| $5,580.7| $(584.7) | -10.5% | Comparable Operating Income (Loss) by Segment (Six Months Ended August 31, in millions) | Segment | 2026 | 2025 | Change ($) | Change (%) | | :--------------------------------------- | :-------- | :-------- | :--------- | :--------- | | Beer | $1,825.0 | $2,000.7 | $(175.7) | -8.8% | | Wine and Spirits | $(25.8) | $130.2 | $(156.0) | -119.8% | | Corporate Operations and Other | $(103.1) | $(117.1) | $14.0 | 12.0% | | Consolidated | $1,696.1| $2,013.8| $(317.7) | -15.8% | - Beer segment net sales decreased due to shipment volume decline, partially offset by favorable pricing. Gross profit was impacted by increased cost of product sold, including tariffs on aluminum cans and unfavorable fixed cost absorption, but partially mitigated by efficiency initiatives[198][202] - Wine and Spirits net sales and operating income significantly decreased due to the 2025 Wine Divestitures and organic declines from unfavorable product mix, shipment volume, and lower contractual distributor payments[201][204] 17. Accounting Guidance Not Yet Adopted This note discusses new accounting standards issued by FASB that have not yet been adopted by the company - New FASB standards on income tax disclosures (effective FY2026) and disaggregation of income statement expenses (effective FY2028) are expected to impact disclosures but not materially affect financial condition, results of operations, or cash flows[119][120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of the company's business, strategy, financial condition, cash flows, and results of operations for the three and six months ended August 31, 2025, highlighting key performance drivers, comparable adjustments, and segment-specific trends Introduction This introduction outlines the purpose and scope of the Management's Discussion and Analysis section - This MD&A provides additional information on the company's businesses, current developments, financial condition, cash flows, and results of operations, to be read in conjunction with the Financial Statements and 2025 Annual Report[124] Overview This section provides a high-level summary of the company's business, market position, and strategic repositioning efforts - Constellation Brands is an international producer and marketer of beer, wine, and spirits, a top growth contributor in the U.S. beverage alcohol market, and the 1 dollar share gainer in the high-end and overall U.S. beer market[128] - The company's wine and spirits business has been repositioned to a portfolio of exclusively higher-end brands to align with consumer-led premiumization trends, aiming for higher growth and margins[129] - A $2,250.0 million goodwill impairment was recorded in the Wine and Spirits segment for the Second Quarter and Six Months 2025 (prior year) due to negative trends in the U.S. wholesale market[131] Strategy This section details the company's strategic vision, segment-specific objectives, and key initiatives like restructuring and divestitures - The strategic vision focuses on consumer-led decision making, talent development, infrastructure investment, and fiscal management to deliver industry-leading total stockholder returns[132][133] - The Beer segment strategy aims to uphold leadership in the U.S. high-end beer market, increase distribution, optimize growth through differentiated brand positioning, and invest in modular capacity additions (Mexico Beer Projects)[135] - The Wine and Spirits segment strategy focuses on driving growth and improving margins beyond Fiscal 2026 with higher-end brands, expanding into international markets, DTC channels, and 3-tier eCommerce[136] - The 2025 Restructuring Initiative is expected to yield over $200 million in net annualized cost savings by Fiscal 2028, with $71.3 million in cumulative pre-tax costs incurred since inception[142] - Significant divestitures include the 2025 Wine Divestitures ($846.5 million proceeds) and SVEDKA Divestiture, while acquisitions include Sea Smoke ($158.7 million)[144][145][148] - The company recognized an $83.3 million net gain from Exchangeable Shares in Six Months 2025 (prior year) but subsequently impaired them to $21.2 million due to declining share price[152][153] Results of Operations This section analyzes the company's financial performance, including net sales, operating income, and net income trends Financial Highlights This section summarizes key financial performance metrics and their period-over-period changes - Net sales decreased 15% for Q2 FY26 and 10% for Six Months FY26, primarily due to the Wine and Spirits Divestitures and lower Beer net sales[156][159] - Operating income increased 171% for Q2 FY26 and 652% for Six Months FY26, largely due to the absence of the prior year's Wine and Spirits goodwill impairment and successful efficiency initiatives in the Beer segment[157][160] - Net income attributable to CBI and diluted EPS increased significantly (139-414%) for both periods, driven by the operating income improvements, partially offset by income tax provisions and prior year's gain on Exchangeable Shares[158][161] Comparable Adjustments This section explains adjustments made to reported financial results to provide a clearer view of core operational performance - Comparable Adjustments are excluded from segment operating results to reflect core operations and evaluate segment management performance[162] Total Comparable Adjustments, Operating Income (Loss) (in millions) | Period | August 31, 2025 | August 31, 2024 | | :--------------------------------------- | :---------------- | :---------------- | | Six Months Ended | $(108.3) | $(2,301.6) | | Three Months Ended | $(12.2) | $(2,319.2) | - Key adjustments for Six Months FY26 included $21.6 million for the 2025 Restructuring Initiative, $16.3 million loss on sale of business, and $52.1 million for asset impairment and related expenses[163][165] - The prior year's comparable adjustments were dominated by a $2,250.0 million goodwill impairment[163][165] Business Segments This section provides a detailed analysis of the financial performance of each operating segment Second Quarter 2026 compared to Second Quarter 2025 This section compares the financial results of the Beer and Wine and Spirits segments for the second quarter Net Sales by Segment (Three Months Ended August 31, in millions) | Segment | 2026 | 2025 | Change ($) | Change (%) | | :--------------------------------------- | :-------- | :-------- | :--------- | :--------- | | Beer | $2,345.0 | $2,530.2 | $(185.2) | -7% | | Wine and Spirits | $136.0 | $388.7 | $(252.7) | -65% | | Consolidated | $2,481.0| $2,918.9| $(437.9) | -15% | - Beer net sales decreased 7% due to a $219.3 million decline in shipment volume, partially offset by $40.6 million from favorable pricing. Shipments trailed depletions as distributors rebalanced inventory[177] - Wine and Spirits net sales decreased 65%, with $220.5 million from divestitures and a $32.2 million organic decrease driven by unfavorable product mix, shipment volume decline, and lower contractual distributor payments[179] - Consolidated gross profit margin increased to 52.8% from 51.8%, driven by comparable adjustments, divestitures of lower-margin brands, and Beer pricing, despite higher Beer cost of product sold (tariffs on aluminum cans, fixed cost absorption)[180][184] - Consolidated operating income increased $2,103.4 million (+171%) to $874.0 million, primarily due to the absence of the prior year's goodwill impairment[190] Six Months 2026 compared to Six Months 2025 This section compares the financial results of the Beer and Wine and Spirits segments for the six-month period Net Sales by Segment (Six Months Ended August 31, in millions) | Segment | 2026 | 2025 | Change ($) | Change (%) | | :--------------------------------------- | :-------- | :-------- | :--------- | :--------- | | Beer | $4,579.5 | $4,803.0 | $(223.5) | -5% | | Wine and Spirits | $416.5 | $777.7 | $(361.2) | -46% | | Consolidated | $4,996.0| $5,580.7| $(584.7) | -10% | - Beer net sales decreased 5% due to a $295.1 million decline in shipment volume and $14.0 million unfavorable product mix, partially offset by $85.6 million from favorable pricing[198] - Wine and Spirits net sales decreased 46%, with $256.5 million from divestitures and a $104.7 million organic decrease driven by shipment volume decline, unfavorable pricing, lower contractual distributor payments, and unfavorable product mix[201] - Consolidated gross profit margin decreased to 51.6% from 52.2%, primarily due to higher cost of product sold in both Beer (tariffs on aluminum cans, fixed cost absorption) and Wine & Spirits segments[202][204][205] - Consolidated operating income increased $1,875.6 million (+652%) to $1,587.8 million, primarily due to the absence of the prior year's goodwill impairment[211] Liquidity and Capital Resources This section discusses the company's cash flow, debt levels, and strategies for managing liquidity and capital - Cash flow from operating activities is the primary source of liquidity, enabling investments, capital expenditures, dividends, and share repurchases[220] Net Cash Flow Summary (Six Months Ended August 31, in millions) | Activity | 2026 | 2025 | Change ($) | | :--------------------------------------- | :-------- | :-------- | :--------- | | Operating activities | $1,489.3 | $1,872.3 | $(383.0) | | Investing activities | $464.8 | $(857.6) | $1,322.4 | | Financing activities | $(1,953.1)| $(1,104.0)| $(849.1) | - Total debt outstanding decreased by $952.8 million to $10,544.9 million as of August 31, 2025, primarily due to senior note repayments using divestiture proceeds, partially offset by new debt issuance[229][233][234] - The company repurchased $604.0 million of Class A Stock under its $4.0 billion 2025 Authorization, with $3,396.0 million remaining available[246] - A quarterly cash dividend of $1.02 per Class A share and $0.92 per Class 1 share was declared on September 30, 2025[244] Information Regarding Forward-Looking Statements This section provides cautionary statements about forward-looking information and potential risks that could affect future results - This Form 10-Q contains forward-looking statements subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations[249] - Forward-looking statements cover business strategy, growth plans, digital acceleration, capital expenditures, effective tax rates, consumer demand, socioeconomic factors, trade policies, share repurchase programs, and future dividends[251] - Key risks include declines in product consumption, dependence on Mexican beer brands, impacts of acquisitions/divestitures, competition, international operations uncertainties, supply chain disruptions, climate change, litigation, and changes to tax laws[254] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section describes the company's exposure to market risks, including foreign currency, commodity, and interest rate fluctuations - The company is exposed to market risks from foreign currency exchange rates, commodity prices, and interest rates, which are managed through derivative instruments for hedging purposes[255] - As of August 31, 2025, 83% of forecasted transactional foreign currency exposures and approximately 82% of forecasted transactional commodity exposures for the remaining six months of Fiscal 2026 were hedged[256][257] Sensitivity Analysis (Hypothetical Adverse Change, in millions) | Risk Category | 10% Adverse Change (Fair Value Impact) | 1% Rate Increase (Fair Value/Expense Impact) | | :--------------------------------------- | :------------------------------------- | :------------------------------------------- | | Foreign currency contracts | $(192.2) | N/A | | Commodity derivative contracts | $29.1 | N/A | | Fixed interest rate debt | N/A | $(510.1) (Fair Value) | | Variable interest rate debt | N/A | $2.0 (Interest Expense, Six Months) | Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of August 31, 2025[263] - No changes were identified in the company's internal control over financial reporting during the quarter ended August 31, 2025, that have materially affected or are reasonably likely to materially affect it[264] Part II – Other Information This part includes disclosures on legal proceedings, equity security sales, and other relevant information not covered in Part I Item 1. Legal Proceedings The company is involved in a putative class action lawsuit (Meza v. Constellation Brands, Inc., et al.) alleging securities law violations related to statements about its beer business. Additionally, several derivative complaints with similar allegations were filed, some of which have been consolidated or dismissed - A putative class action, Meza v. Constellation Brands, Inc., et al., was filed on February 18, 2025, alleging violations of Sections 10(b) and 20(a) of the Exchange Act concerning allegedly false or misleading statements about the company's beer business prospects. A motion to dismiss is pending[267] - Derivative complaints (Silva v. Newlands, et al., Mason v. Newlands, et al., Wasserman v. Baldwin, et al.) with similar allegations were filed against current and former directors and officers. The Silva and Mason litigations were consolidated and stayed, while the Wasserman litigation was voluntarily dismissed[268] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1,740,884 shares of Class A Stock for an aggregate cost of $297.9 million during the three months ended August 31, 2025, under its $4.0 billion 2025 Authorization Issuer Purchases of Equity Securities (Three Months Ended August 31, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (millions) | | :--------------------------------------- | :----------------------------- | :--------------------------- | :------------------------------------------------------------------------------------ | | June 1 – 30, 2025 | 431,578 | $173.78 | $3,618.9 | | July 1 – 31, 2025 | 931,314 | $170.68 | $3,460.0 | | August 1 – 31, 2025 | 377,992 | $169.31 | $3,396.0 | | Total | 1,740,884 | $171.15 | N/A | - As of August 31, 2025, $3,396.0 million remains available for future share repurchases under the 2025 Authorization[271] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the three months ended August 31, 2025 - None of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended August 31, 2025[272] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, indentures for senior notes, credit agreements, equity compensation plans, and certifications Signatures This section contains the official signatures of the company's authorized officers, certifying the accuracy of the report - The report was signed on October 7, 2025, by Kenneth W. Metz, Senior Vice President, Controller and Corporate Finance, and Garth Hankinson, Executive Vice President and Chief Financial Officer[281]