Constellation Brands (STZ)

Beer, wine, and spirits company Constellation Brands (NYSE:STZ) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 5.5% year on year to $2.52 billion. Its non-GAAP profit of $3.22 per share was 2.3% below analysts’ consensus estimates.

Company Overview

With a presence in more than 100 countries, Constellation Brands (NYSE:STZ) is a globally renowned producer and marketer of beer, wine, and spirits.

These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the rise of cannabis, craft beer, and vaping or the steady decline of soda and cigarettes. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.

Competitors include Anheuser-Busch Inbev (NYSE:BUD), Boston Beer (NYSE:SAM), and Molson Coors (NYSE:TAP) along with international companies such as Asahi, Carlsberg, and Heineken.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $10.06 billion in revenue over the past 12 months, Constellation Brands is one of the larger consumer staples companies and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because there are only a finite number of major retail partners, placing a ceiling on its growth. To expand meaningfully, Constellation Brands likely needs to tweak its prices, innovate with new products, or enter new markets.

As you can see below, Constellation Brands’s 3.2% annualized revenue growth over the last three years was sluggish. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

This quarter, Constellation Brands missed Wall Street’s estimates and reported a rather uninspiring 5.5% year-on-year revenue decline, generating $2.52 billion of revenue.

Looking ahead, sell-side analysts expect revenue to decline by 6.6% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and suggests its products will face some demand challenges.

When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.

The demand for Constellation Brands’s products has generally risen over the last two years but lagged behind the broader sector. On average, the company’s organic sales have grown by 2.8% year on year.

In the latest quarter, Constellation Brands’s organic sales fell by 4% year on year. This decline was a reversal from its historical levels. We’ll keep a close eye on the company to see if this turns into a longer-term trend.

Constellation Brands has great unit economics for a consumer staples company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 51.4% gross margin over the last two years. That means Constellation Brands only paid its suppliers $48.61 for every $100 in revenue.

In Q2, Constellation Brands produced a 50.4% gross profit margin, down 2.4 percentage points year on year and missing analysts’ estimates by 1.8%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Constellation Brands has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 17.2%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Constellation Brands’s operating margin decreased by 31.8 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Constellation Brands generated an operating margin profit margin of 28.4%, down 7 percentage points year on year. Since Constellation Brands’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Constellation Brands’s EPS grew at a decent 8.4% compounded annual growth rate over the last three years, higher than its 3.2% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q2, Constellation Brands reported EPS at $3.22, down from $3.57 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Constellation Brands’s full-year EPS of $13.42 to shrink by 3.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Constellation Brands has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 17.4% over the last two years.

Taking a step back, we can see that Constellation Brands’s margin expanded by 6.3 percentage points over the last year. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Constellation Brands’s free cash flow clocked in at $444.4 million in Q2, equivalent to a 17.7% margin. This result was good as its margin was 5.8 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Constellation Brands historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.8%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Constellation Brands reported $73.9 million of cash and $11.57 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.74 billion of EBITDA over the last 12 months, we view Constellation Brands’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $209.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

The company's revenue and EPS both missed, which is a poor start. However, Constellation Brands did maintain its full-year revenue guidance. Still, this quarter could have been better. The stock remained flat at $165 immediately following the results.

Updated: July 15, 2025 at 10:45 PM EDT

Before deciding whether to buy Constellation Brands or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Constellation Brands isn’t a terrible business, but it doesn’t pass our bar. First off, its revenue growth was uninspiring over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its declining operating margin shows the business has become less efficient. On top of that, its projected EPS for the next year is lacking.

Constellation Brands’s P/E ratio based on the next 12 months is 12.9x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $210.01 on the company (compared to the current share price of $165.90).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.