Constellation Brands has reported its fiscal second-quarter earnings, surpassing market estimates for earnings while falling short of revenue expectations. The company faced a significant challenge, booking a staggering $2.25 billion non-cash goodwill impairment loss within its wine and spirits sector.
Adjusted earnings reached $4.32 per share for the quarter ending in August, an increase from $3.80 during the same period the previous year. Market consensus on Capital IQ had predicted a normalized EPS of $4.07. In contrast, net sales showed a modest year-over-year growth of 3%, totaling $2.92 billion, yet this posted a shortfall compared to Wall Street’s anticipated $2.94 billion.
Following the earnings report, Constellation's stock experienced a decline of 2.9% in Thursday trading. Commenting on the performance, Chief Executive Bill Newlands remarked, “While the current macroeconomic backdrop has weighed on demand for beverage alcohol — and for consumer packaged goods, more broadly — we continued to deliver strong performance in the second quarter of fiscal 2025.” However, the company’s wine and spirits sales plummeted by 12% year-over-year, bringing in $388.7 million as shipment volumes decreased by 9.8%, primarily affected by challenging market conditions within the U.S.
wholesale channel. The depletion rate for this division, which reflects the pace at which products are sold to end consumers, showed alarming signs at roughly negative 18%, while the operating margin remained relatively unchanged at 18.1%. The substantial non-cash goodwill impairment loss of $2.25 billion recorded in the quarter was anticipated, as the company had previously alerted investors in September about the expected impairment charge ranging between $1.5 billion to $2.5 billion due to declining performance in the overall wine market, particularly affecting both its mainstream and premium wine brands. On a brighter note, the beer revenue segment marked a 6% increase to $2.53 billion, with shipment growth hitting 4.6%.
The segment's depletion rate improved to 2.4%, driven by sustained demand across most of its portfolio, particularly highlighted by a remarkable 23% increase in the Pacifico brand sales. Consequently, this division saw its operating margin expand significantly by 270 basis points to an impressive 42.6%. Looking ahead, Constellation Brands has reaffirmed the fiscal 2025 outlook released in September, projecting comparable EPS to fall between $13.60 and $13.80, with the Street currently estimating an EPS of $13.68.
The company has also confirmed its full-year sales growth guidance, anticipating an enterprise sales growth rate between 4% and 6%. Specifically, beer revenue is expected to increase between 6% and 8%, while wine and spirits revenue is projected to decline by 4% to 6%..