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Constellation Brands (STZ) reported 1Q26 earnings that missed consensus expectations, marking the second EPS shortfall in three quarters, while net sales declined 5.5% yr/yr to $2.52 bln, the steepest drop since 4Q23. This underperformance was anticipated by the market, reflected in a 17% stock decline since mid-May, driven by mounting concerns over weakening demand in the Beer segment, particularly among its core Hispanic customer base grappling with intensifying economic pressures such as higher costs for essentials like food and gas. These pressures, combined with increased aluminum tariffs, have weighed heavily on investor sentiment, setting low expectations for the quarter.

Despite the earnings miss, STZ reaffirmed its FY26 guidance, projecting comparable EPS of $12.60–$12.90 and enterprise organic net sales growth of (2.0) to 1%, alleviating fears of a downward revision. This reaffirmation, coupled with the market’s subdued expectations, has fueled a modest post-earnings stock rally. Management’s confidence in achieving these targets hinges on expected sequential improvements in 2H26, particularly in the Beer segment, supported by cost-saving initiatives and anticipated macroeconomic tailwinds such as potential Fed rate cuts.

• The Beer segment, which accounts for the lion’s share of revenue with brands like Modelo Especial and Corona Extra, faced significant challenges, reporting a depletion decline of 2.6%, a deterioration from the prior quarter’s 1.0% drop, with net sales falling 2% to $2.23 bln. Key pressures include subdued consumer spending and value-seeking behavior, particularly in top sales states and zip codes with larger Hispanic populations, who represent roughly 50% of the Beer business and are increasingly strained by economic factors like inflation and rising unemployment.
• Additionally, higher aluminum tariffs and elevated marketing expenditures further eroded operating margins, which contracted 150 bps to 39.1%, though the segment’s profitability remains robust compared to industry peers.
• The Wine & Spirits segment continued its volatile performance, with depletions down 8.1% and organic net sales plunging 21% to $280.5 mln, while operating margins swung to a loss of 2.1% from a prior-year profit of 15.3%. This downturn, driven by a $36 mln sales hit from divestitures, $53 mln from volume declines, and $19 mln from negative price/mix, contrasts sharply with the segment’s 11% organic net sales growth in 4Q24, highlighting its inability to sustain recent momentum.
• The segment’s ongoing premiumization transformation, marked by divestitures of mainstream brands like SVEDKA and a focus on higher-end offerings such as Kim Crawford and The Prisoner, has yet to stabilize, with lower contractual distributor payments and volume-related adverse variances offsetting marketing and SG&A efficiencies. Management remains optimistic about sequential improvements in 2H26, citing early signs of traction in premium brands, but the segment’s perpetual turnaround mode underscores persistent execution risks.

STZ’s Q1 results and reaffirmed FY26 guidance are being viewed as better-than-feared, sparking a modest stock rebound as investors take comfort in the absence of a guidance cut. However, the results were undeniably soft, with both the Beer and Wine & Spirits segments facing significant headwinds from economic pressures and portfolio transitions, suggesting that sustained recovery will depend on improved consumer sentiment and successful execution of the premiumization strategy.