- Enterprise Dollar Sales Increase: 4.5 percentage points above the entire CPG sector.
- Beer Business Net Sales Increase: High-single digit.
- Operating Margin Improvement: Significant improvement supported by cost savings and operational efficiency initiatives.
- Shareholder Returns: $185 million in dividends and $200 million in share repurchases, plus over $40 million more in buybacks in June.
- Comparable Earnings Per Share Growth: More than 17%.
- Beer Business Net Sales Growth: More than 8%.
- Beer Business Operating Income Growth: Nearly 16%.
- Beer Business Shipment Growth: 7.6% in Q1.
- Beer Business Depletions Growth: 6.4% excluding craft brand divestitures.
- Modelo Especial Depletions Growth: Nearly 11%.
- Pacifico Depletions Growth: Over 20%.
- Modelo Chelada Depletions Growth: More than 5%.
- Beer Business Operating Margin Expansion: 2.6 percentage points year over year.
- Wine and Spirits Net Sales Decline: 7% in Q1.
- Wine and Spirits Operating Income Decline: 25% in Q1.
- Enterprise Net Sales Growth: 6% for the quarter.
- Enterprise Operating Income Growth: 23% reported, 12% comparable.
- Enterprise Comparable Operating Margin: 34.7%, a 180-basis point increase year over year.
- Comparable EPS for Q1: $3.57.
- Beer Business Operating Margin: 40.6%, a 260-basis point increase.
- Free Cash Flow: $315 million, a 19% decrease from the prior year.
Release Date: July 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Constellation Brands Inc (STZ, Financial) achieved an enterprise dollar sales increase 4.5 percentage points above the entire CPG sector.
- The beer business delivered a high-single digit net sales increase and significant operating margin improvement.
- The company returned $185 million to shareholders in dividends and executed $200 million in share repurchases.
- Modelo Especial grew depletions by nearly 11% and upheld its position as the top share gainer.
- Constellation Brands Inc (STZ) drove comparable earnings per share growth of more than 17%.
Negative Points
- The wine and spirits business faced near-term challenges, largely driven by broader category headwinds.
- Wine and spirits net sales declined by 7% in Q1.
- Operating income for the wine and spirits business declined by 25% in the first quarter.
- The on-premise beer sales were slightly weaker than expected, partly due to weather conditions.
- The company anticipates a full-year 9% to 11% decline in operating income for the wine and spirits segment.
Q & A Highlights
Q: Can you comment on the continued momentum in beer and disciplined marketing efforts, and how you exited the quarter? Any June commentary so far given the state of the consumer?
A: Our buy rates for our beer business remain very strong, with high-single digit growth both at a consumer level and within the Hispanic community. Our beer business has tremendous brand loyalty, which continues to excel despite other market dynamics. Gains in shelf sets have also been additive. We consistently deliver on our targets, and this quarter is no different.
Q: If you were to enter a period of peso weakness, can you speak to the flexibility that this might give you or would enter into your pricing strategy?
A: Our hedging policies are very effective. We have a multi-year hedging policy that allows us to layer in incremental hedges over a multiyear period. In Q1, we saw significant movements and took advantage of that by layering in incremental hedges, not just for this year but also for future years. We are now about 85% hedged against the peso for the fiscal year.
Q: Can you unpack what you're seeing from low- versus middle- versus high-end consumers in terms of demand for your beer business? Any update on on-premise channel trends?
A: The on-premise was slightly weaker than expected, partly due to weather. However, our buy rates remain strong, particularly within the Hispanic community, which is more than 50% of our overall mix. This consumer base views beer as a staple, which is a long-range benefit for our business.
Q: Can you talk about this year's innovation, including Corona Sunbrew and the Modelo Aguas Frescas expansion?
A: We have expanded Modelo Aguas Frescas to 20 additional markets, covering roughly 70-75% of the total expected consumption. We are also testing Corona Sunbrew in the Northeast, and early consumer sampling suggests it will be a success. Both products were introduced after significant consumer testing to ensure high probability of success.
Q: What do you see as the key variables that influence the high versus the low end of that operating profit guidance range for beer for the year?
A: We feel good about our full-year guidance. We expect normal seasonality, with higher volumes in the first half of the year and lower volumes in the second half due to regular seasonality and maintenance on our breweries. We also expect some favorability in Q4 from lapping the VAT write-off of last year.
Q: Can you comment on share buybacks given the stock's current performance?
A: We bought back $200 million worth of shares in the first quarter and an additional $40 million-plus through the end of June. We have about $2.4 billion to $2.6 billion left on our share reauthorization and will continue to buy when we see periods of dislocation.
Q: How far along are you in the construction of the Veracruz brewery?
A: We are well on track with the construction of the Veracruz brewery, which is expected to open at the end of the next fiscal year or the fiscal year after that. This year is our peak in terms of CapEx, and we expect CapEx to go from low-double digit range of net sales to mid-single digit range by the end of our medium-term outlook.
Q: Can you provide more color on the efficiencies gained in marketing and advertising spend this year?
A: We are spending more dollars this year than in prior years due to the growth profile of our brands. We have created efficiencies within our spend, resulting in a slightly lower percentage of net sales. We continue to invest in engaging our consumers through national media and digital advertising platforms.
Q: How would a potential 10% universal baseline tariff impact Constellation, given your Mexican import beer business?
A: It's too early to speculate on the impact of the November election. Our business performed well during the last Trump administration, and we expect to continue performing well irrespective of who is elected. We have a strong government affairs team that works closely with both the US and Mexican governments.
Q: What kind of visibility do you have with your distributors on the commercial turnaround for the wine business?
A: We are ahead of schedule on some operational points and have seen significant improvement in our engagement with our wholesale network. We expect the improvement in the wine business to be back-half loaded and are working closely with our key wholesale partners to deliver against expectations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
