Modelo Beer Stock Falls Despite Strong Profit Estimates on Sales

Key takeaways

• Constellation Brands impressed with boosted sales and revenue thanks to the success of its Modelo Especial beer brand
• But the drinks company disappointed in wines and spirit sales in its second quarter
• Constellation Brands’ share price fell 3.5% in reaction to the earnings report

Cheers to that. Constellation Brands, the owner of the popular Modelo beer brand, reported better-than-expected Q2 profit and revenue, which surpassed Wall Street’s expectations. The brand has undoubtedly benefited from Bud Light beer’s marketing misfortune.

That didn’t stop the stock from still falling, with poor spirits and wine sales to blame. Constellation Brands clearly has some work to do to keep investors happy — and not just rely on one brand.

Let’s get into Constellation Brands’ earnings breakdown and why Wall Street wasn’t impressed with the overall picture.

What were Constellation Brands’ latest earnings like?

Constellation Brands, home to drinks like Modelo, Corona and Casa Noble Tequila, reported its second-quarter earnings this week and surprised on the upside. The company reported adjusted earnings of $3.70 a share on sales of $2.84 billion, with consensus estimates predicting earnings of $3£7 a share on revenue of $2.82 billion.

Beer sales rose 12% in the quarter compared to the same time last year, having already taken the crown from Anheuser-Busch InBev’s Bud Light as the top-selling beer in the U.S. after a disastrous marketing campaign from the latter that sparked a conservative backlash. The Modelo Especial was up 9%, the Pacifico sales climbed 15% and the Chelada business was up an impressive 42%.

The drinks company also raised its full-year earnings expectations, with Constellation Brands now anticipating profits of between $12 and $12.20 a share. That’s an increase from the previous estimate of $11.70 to $12 a share — and a clear message the brand doesn’t expect the Bud Light drama to die away soon.

“Modelo Especial continued to outperform the market as the top share gainer and solidified its position as the №1 beer in U.S. tracked channels,” Constellation Brands CEO Bill Newlands said in a statement.

But it wasn’t all good news. The drinks conglomerate saw a drop in its wines and spirits sales by 14% compared to the same time last year to reach $444.1 million.

What was the market reaction?

Despite the good news about the beer sales, Wall Street focused on the ‘glass half empty’ part of Constellation Brands’ disappointing wine and spirits sales as consumers continue to pull back on spending amid a difficult economic climate.

The company’s stock fell 3.5% during Thursday trading, but the brand is still up 4.3% since the start of the year. In comparison, Anheuser-Busch InBev stock has fallen nearly 10% in the same period.

The bottom line

Constellation Brands continues to benefit from Anheuser-Busch InBev’s slow comeback after making such a disastrous error with its customer base. But Wall Street wasn’t fooled and decided the company’s drop in the wines and spirits business was cause for concern. Constellation might be unable to fix that easily, depending on consumer spending and a rumored recession.