STZ Q2 Earnings Beat, Sales Down on Soft Wine & Spirits Business

Core Insights - Constellation Brands, Inc. reported second-quarter fiscal 2026 results with both sales and earnings exceeding Zacks Consensus Estimates despite year-over-year declines due to weak consumer demand and socioeconomic challenges [1][2]. Financial Performance - Comparable earnings per share (EPS) were $3.63, a 16% decline year over year, but above the Zacks Consensus Estimate of $3.37. Reported EPS was $2.65 compared to a loss of $6.59 in the same quarter last year [2]. - Net sales decreased 15% year over year to $2.48 billion, surpassing the Zacks Consensus Estimate of $2.46 billion. Organic net sales fell 8% year over year [2]. - The stock price increased by 3.3% in after-market trading following the earnings release, reflecting better-than-expected performance [3]. Segment Performance - Beer segment sales declined 7% year over year to $2.35 billion, driven by an 8.7% drop in shipment volumes due to socioeconomic headwinds and distributor inventory rebalancing. Depletions fell 2.7%, with notable declines in Modelo Especial, Corona Extra, and Modelo Chelada brands, partially offset by growth in Pacifico and Victoria [4]. - Wine and spirits segment sales plummeted 65% year over year to $136 million, impacted by a 76.4% decline in shipment volumes due to divestitures and changes in distributor obligations, although depletions grew nearly 2% [5]. Margins and Operating Income - Comparable operating income was $886.2 million, down from $1,019.1 million in the prior-year quarter, attributed to weak performance in beer, wine, and spirits [6]. - Operating income for the beer segment fell 12% year over year to $951.6 million, with the operating margin contracting by 200 basis points to 40.6% due to higher costs and increased marketing expenses [7]. - The wine and spirits segment reported an operating loss of $19.8 million, a significant decline from an operating income of $70.5 million in the previous year, with margins affected by divestitures and contractual changes [8]. Financial Position and Cash Flow - As of August 31, 2025, cash and cash equivalents stood at $72 million, long-term debt was $9.8 billion, and total shareholders' equity was $7.5 billion. The company generated an operating cash flow of $1.5 billion and an adjusted free cash flow of $1.1 billion in Q2 FY26 [9]. - The company returned nearly $604 million to shareholders through buybacks and dividends, with a quarterly dividend of $1.02 per share announced [10]. Future Outlook - Constellation Brands forecasts operating cash flow of $2.5-$2.6 billion and free cash flow of $1.3-$1.4 billion for fiscal 2026, with planned capital expenditures of $1.2 billion [11]. - The company anticipates a decline in enterprise organic net sales of 4-6% and a decrease in beer segment net sales of 2-4%. The wine and spirits segment is expected to decline by 17-20% [12]. - Management projects a comparable EPS guidance of $11.30-$11.60 for fiscal 2026, with reported EPS expected to be $9.86-$10.16 [14].