Constellation keeps steady with Q3 after Q1 troubles and Q2 trials

After a challenging start to FY26, owing to the prevailing US tariff constraints, Constellation Brands Inc. exceeded Wall Street expectations within the third quarter (Q3). The company exhibited effective strategy and achieved Earnings Per Share (EPS) of USD 3.06 in Q3, beating analyst forecasts despite continued pressure on sales and the market. 

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Q3 picks up momentum

Momentum in Q3 as Constellation exceeded earnings expectations despite continued top-line pressure. For the quarter ended November 30, net sales declined 10 per cent Y-o-Y to USD 2.22 billion, while adjusted EPS of USD 3.06 beat analyst forecasts. 

The beer sector kept outperforming steadily in the broader beverage alcohol market. It gained a modest share, driven by sustained strength in Modelo and Corona. However, the weak results in wine and spirits suggested a softer demand in the area.

Constellation maintained strong cash flows, returned capital through dividends and share buybacks, despite a challenging operating environment. Management revised reported EPS guidance to a range of USD 9.72 to USD 10.02, while reaffirming comparable EPS guidance of USD 11.30 to USD 11.60. 

Having dealt with the impact of the US tariffs, this underscored Constellation’s gradual recovery following the Q1 challenges and drawbacks, reflecting control rather than stress. 

Q2 persists for market stability

Q2 FY26 results depicted a partial stabilisation but remained weak year-on-year. Net sales declined about 15 per cent Y-o-Y to USD 2.48 billion, missing expectations of USD 2.51 billion. Adjusted EPS, however, improved sequentially to USD 3.63. Performance was better than Q1, when sales fell 6 per cent Y-o-Y, and management reiterated full-year guidance, projecting a 2 to 4 per cent decline in net sales for FY26. 

CEO Bill Newlands acknowledged persistent headwind concerns but highlighted disciplined capital allocation followed by strategic execution. Q3, therefore, has emerged with results having absorbed the tariff impact and adapted its cost structure. 

Q1 poses tariff challenges

Due to rising input costs and trade policy pressures, the Q1 results were unable to live up to the estimates due to rising input costs and trade policy pressures. For the quarter ended May 31, 2025, net sales came in at USD 2.52 billion, not meeting expectations of USD 2.55 billion, while comparable EPS of USD 3.22 also missed forecasts. 

Authorities placed a large share of the responsibility on US tariffs on aluminium, introduced under Section 232, which significantly increased packaging costs for canned beverages. Such problems could be noted in the beer segment, where operating margins declined by 150 basis points, aggravated directly by the tariff impact. 

The outlook worsened after indications that tariffs on imported steel and aluminium could be doubled from 25 per cent to 50 per cent, posing further margin risks for beverage manufacturers. With over 70 per cent of US beer packaged in aluminium cans, investor concerns intensified, leading to a decline of more than 20 per cent in Constellation’s share price during the fiscal year.

Nonetheless, the company maintained its full-year profit guidance, expressing confidence that strong demand for flagship brands Modelo Especial and Corona would help offset higher costs.

Q-o-Q comparison

Driven by tariff pressures on aluminium cans and weak demand for wine and spirits, net sales trended downward from USD 2.52 billion in Q1 to USD 2.48 in Q2, marking a decline of 1.6 per cent Q-o-Q and further down to USD 2.22 billion in Q3, a 10.5 per cent decline compared to Q2.

Adjusted EPS fluctuated but exceeded forecasts of USD 3.63 in Q2 and of USD 3.06 in Q3, supported by cost efficiencies and beer share gains in Modelo and Corona. While Q2 results went up 12.7 per cent Q-o-Q, Q3 outcomes declined by 15.7 per cent. 

Q3 momentum improved via EPS beats, amid a 10 per cent sales drop that was less severe than the 15 per cent drop in Q2. The steady beer outperformance, and robust cash flows funding dividends indicated operational control post-tariff hits, unlike Q1's sharper margin erosion of 150 basis points in beer. Management reaffirmed FY26 comparable EPS guidance around USD 11.30 to USD 11.60, reflecting gradual recovery over distress. 

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