During the October 2 episode of Mad Money, Jim Cramer discussed Constellation Brands, Inc. (NYSE:STZ) ahead of its scheduled October 6 earnings release:
After the close Tuesday, we get results from Constellation Brands. Now, this is a totally different situation. STZ is the beer, wine, and liquor company best known for Corona and Modelo. But I have to stress that this group has been nothing short of horrendous. We’re watching an amazing thing occur in this country, it’s not talked about enough, a genuine contraction in certain liquors and steep slowdown in beer sales, even Constellation’s popular Mexican imports.
In its last earnings report, the company delivered better-than-expected earnings, but investors still weren’t convinced. The reason for that disconnect is important along with the valuation itself. The company is scheduled to report fiscal second-quarter 2027 results after the market closes on October 6, followed by its earnings call on October 7. Its latest published quarterly results remain those for the period ended May 31. While Corona and Modelo remained some of America’s biggest beer brands, Constellation’s stock was approaching a 52-week low. The reason may be more complex than the falling share price suggests.
Smaller Brands Provide Some Encouragement
Constellation Brands, Inc.’s fiscal first-quarter 2027 beer sales increased 2% to approximately $2.28 billion, while beer operating income also rose 2%. Performance differed considerably across brands. Pacifico’s depletions increased approximately 21%, Victoria’s rose 14%, and Modelo Chelada grew 6%. Depletions measure distributors’ sales to retailers. The remaining wine and spirits portfolio also recorded 8% organic net sales growth. Its reported sales decline of 47% reflected the impact of divestitures, making that headline figure an incomplete measure of demand for the retained brands. Cramer was already seeing something in Constellation Brands that he did not see in Diageo, but the numbers raised a different set of questions. Here’s what the two stocks looked like side by side.
Weakness in the Largest Beer Brands Remains a Concern
Cramer went on to explain why he believes the stock’s problems extend beyond a difficult quarter:
This stock is now down 19% for the year. Worse, two years ago, it was at $255 and now it’s just under $113. What’s behind the decline? GLP-1 weight loss drugs are part of the equation, but so are the habits of the younger generation who simply haven’t been converted into heavy beer drinkers like their parents. I think it’s a belief that any kind of alcohol is just bad for your health. I’m an everything in moderation kind of guy, but my generation simply drinks more than the younger folk. And you know what it is? I think that alcohol is truly aging out in this country.
The company’s results show weakness in its largest beer brands, although they do not establish how much is attributable to the causes Cramer described. Total beer depletions fell 0.3%, including an approximately 2% decline for Modelo Especial and a decline exceeding 5% for Corona Extra. Beer shipments increased 1.8%, so shipment growth was stronger than distributors’ sales to retailers.
The share-price decline also does not make Constellation Brands, Inc. the least expensive brewer. The company trades at a forward earnings multiple of approximately 9.6x, compared with 7.8x for Molson Coors. The single-digit multiple offers a lower entry price relative to expected earnings, but a sector peer still trades lower.
Fund Ownership Rises Despite the Difficult Backdrop
Insider Monkey’s Q2 data tracking over 1000 hedge funds, showed 59 hedge funds holding Constellation Brands, Inc., compared with 56 in the preceding quarter. Harris Associates was the company’s top shareholder among those hedge funds with nearly 3.1 million shares. Short interest represented 5.69% of the public float. The modest increase in fund holders contrasts with Cramer’s caution, although the ownership count alone does not reveal the whole picture as Q3 filings are still ongoing.
Pacifico and several smaller brands are growing, but Modelo Especial and Corona Extra still need to improve. The upcoming report will show whether their weakness continued through the summer. Cramer sees a lasting change in drinking habits; for shareholders, a recovery in those flagship brands would offer a more immediate reason to reconsider the stock.
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