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Constellation Brands (STZ) delivered a notable beat on both earnings and revenue for 3Q26, even as the company navigated a broader alcoholic beverage environment marred by declining volumes. The stock is surging following the release, a move that reflects low investor expectations after a dismal 2025 where shares plunged 37%. This decline was driven by a series of challenges throughout the prior year, including a massive $2.25 bln goodwill impairment in the Wine & Spirits segment and significant macro headwinds like reduced consumer discretionary income and persistent inflationary pressures.

• Comparable EPS of $3.06 comfortably exceeded market estimates, despite falling 6% year-over-year from $3.24. Net sales dropped 10% yr/yr to $2.22 bln, primarily due to the divestiture of mainstream wine and spirits brands, but still managed to beat expectations.
• The Beer business remained a relative anchor of strength, with net sales down only 1% and a 10 bps improvement in operating margin to 38.0%, driven by $40 mln in quarterly cost-saving initiatives.
• Beer depletion performance was buoyed by high-end growth, specifically from Pacifico (up 15%) and Victoria (up 13%), which helped offset a 4% decline in Modelo Especial.
• The Wine & Spirits segment continued to struggle as a laggard, with organic net sales falling 7% as the company continues a multi-year effort to pivot toward premium brands through divestitures like SVEDKA.
• Management reaffirmed its full-year fiscal 2026 comparable EPS guidance of $11.30 to $11.60, providing much-needed stability for investors.

Briefing.com Analyst Insight:

STZ is finally showing signs of life after a brutal 2025 that saw its valuation gutted by more than a third. The Q3 results are a "relief rally" in the truest sense; while the yr/yr declines in revenue and EPS look concerning on paper, they were far better than the dire scenarios the market had priced in. The company's ability to expand margins in its core Beer business through aggressive cost controls and efficiency gains -- totaling $145 mln year-to-date -- demonstrates strong operational discipline in a difficult consumer tape. However, the Wine & Spirits turnaround remains the proverbial "can kicked down the road." Despite years of restructuring and divestitures, the segment is still shrinking organically, and its operating income is nearly non-existent for the current fiscal year. Overall, we remain cautious. While the reaffirmed guidance is a positive, the stock’s recent surge may be more about "less bad" news than a fundamental acceleration of growth. With the Wine & Spirits drag persisting, we would wait for more consistent organic volume growth across the board before calling this a definitive turnaround.