By Evie Liu
Constellation Brands, the distributor of Mexican lagers including Corona and Modelo Especial, is facing new challenges as it reports its results for its third fiscal quarter.
The numbers are due before the market opens on Friday. Wall Street analysts polled by FactSet expect earnings of $3.31 per share and $2.53 billion in sales for the quarter that ended in November. That would represent gains of 3.8% in EPS and 2.5% in sales.
In the previous earnings report three months ago, Constellation Brands turned in a better-than-expected quarterly profit but fell short on sales, saying a soft economy has hurt demand for alcoholic drinks. As of the close on Wednesday, before the national day of mourning for former President Jimmy Carter, the stock was down almost 14% over the past 12 months.
The company's two business segments -- beer, and wine and spirits -- have been on very different paths. Beer sales have seen strong growth and market-share gains thanks to brands like Modelo Especial, Corona Extra, and Pacifico.
Modelo Especial has moved into the top spot in terms of U.S. beer sales by dollar value because sales of Bud Light tanked in 2023. Some consumers boycotted Bud Light because of the brand's involvement with transgender influencer Dylan Mulvaney.
Meanwhile, the wine and spirit business, which makes up about 15% of Constellation's total revenue, has been struggling with declining sales. Management has said that it expects to recognize a noncash goodwill impairment loss of approximately $1.5 to $2.5 billion for the operation.
The latest issue for both segments emerged Jan. 3 , when Surgeon General Vivek Murthy issued an advisory that outlined the link between alcohol consumption and cancer risk. He called for actions to increase public awareness, such as requiring more prominent warning labels on alcoholic beverages.
That initiative could run into trouble in Congress, however, because alcohol companies and trade groups spend millions of dollars each year on lobbying for regulations that favor the industry.
Investors are also worried that potential tariffs on Mexican goods could force the company to raise prices. President-elect Donald Trump said in November that his administration plans to impose a 25% tariff on goods imported from Mexico, Canada, and China.
Mexican beers account for about 86% of Constellation's sales, according to Roth MKM analyst Bill Kirk, who estimates that the company would need a 12% price increase to offset the tariffs. Still, history suggests that demand for beer seems resilient regardless of price increases, Kirk said in a research note in November.
Write to Evie Liu at evie.liu@barrons.com
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January 09, 2025 16:30 ET (21:30 GMT)
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