Constellation Brands Lifts Outlook as Beer Margins Stabilize and Earnings Rebound
The beer-and-spirits maker posted comparable earnings of $3.43 a share, reversing two consecutive quarters of declines.
Constellation Brands (STZ), the beer-and-spirits maker, reported first-quarter fiscal 2027 comparable earnings of $3.43 a share, up 7% from a year earlier, snapping back-to-back quarterly declines that had weighed on investor sentiment.
The quarter marked a turning point in profitability. Enterprise operating income rose 18% to $845 million, rebounding from a 9% comparable decline in the fourth quarter of fiscal 2026 and flat comparable operating income in the third quarter. Consolidated operating margin expanded to 34.7% from 28.4% a year ago, aided by lower asset-impairment charges and tighter cost controls.
Reported net sales fell 3% to $2.43 billion, reflecting the impact of the 2025 wine divestitures, but organic net sales grew 3% after stripping out those asset sales. Reported EPS climbed 31% to $3.79, lifted by a lower effective tax rate and reduced interest expense as the company paid down $601 million in principal during the quarter.
Beer, which accounts for the vast majority of revenue, delivered net sales of $2.28 billion, up 2% on 1.8% shipment growth and favorable pricing. Depletions declined 0.3%, an improvement from the 3% drop in the third quarter but a step back from the 0.6% growth logged in the fourth quarter. The brand mix told a divergent story: Pacifico depletions surged roughly 21%, Victoria grew about 14%, and Modelo Chelada brands rose roughly 6%, while Modelo Especial depletions slipped about 2% and Corona Extra fell more than 5%. Beer operating margin held essentially flat at 39.0%, stabilizing after compressing 170 basis points for the full fiscal 2026 year and 340 basis points in the fourth quarter alone.
In Wine & Spirits, reported net sales dropped 47% to $149 million because of the divestitures, but organic sales grew 8% and depletions rose 6.6%. Mi CAMPO Tequila was a standout, with depletions up roughly 62%. The segment's operating margin improved to negative 0.7% from negative 2.1% a year ago, while gross margin expanded to 43.0% from 34.3%.
Management raised full-year reported EPS guidance to $11.50 to $12.20, up from the initial $11.10 to $11.80 range, citing a lower expected tax rate of roughly 17% versus the prior 20% estimate. Comparable EPS guidance of $11.20 to $11.90 was affirmed, and the company projected comparable operating margin of 32% to 33% for the year.
Free cash flow rose 9% to $485 million in the quarter, and the company repurchased $224 million of stock, reducing diluted shares outstanding to 172.4 million from 178.0 million a year ago. SG&A expenses fell 8.8% to $457 million, and net interest expense declined to $85.8 million from $98.9 million as long-term debt dropped to $9.10 billion from $9.69 billion at the end of the prior quarter.