Constellation Brands (STZ) Q4 FY26 earnings call: guidance and Q&A

Why is the FY27 beer top line guidance (negative 1% to positive 1%) decelerating relative to the strong start seen in March, given the limited visibility and consumer caution?

Management acknowledged high volatility and low visibility but noted strong exit from FY26, sequential gains in Q4, and a solid March start. They remain optimistic but cautious due to the fluid operating environment.

“Certainly, we remain optimistic about the year that we have just begun. -- but we need to continue to recognize volatility has been high and visibility has been low.”

asked by Nik Modi · answered by William Newlands

What are the key drivers for the revised FY27 beer operating margin guidance of 37-38% (down from 39-40%), especially regarding the Veracruz brewery and the path to 40% margins in the future?

Headwinds include fixed cost absorption from Veracruz, increased SG&A, and marketing investments. These are offset by 1-2% pricing, cost savings, and aluminum tariff relief. Management did not provide guidance beyond FY27 for returning to 40% margins.

“The primary headwind as it relates to operating -- our gross profit margins are expense-related, costs associated with our new brewery in Veracruz, which is expected to begin production around the middle of our fiscal year.”

asked by Bonnie Herzog · answered by Garth Hankinson

Can you detail input cost expectations and hedging levels for FY27, discuss upside/downside drivers for beer margins, and explain the depressed Wine & Spirits margin guidance for FY27 and its longer-term implications?

The company is well-hedged for FY27 (fuel ~100%, aluminum ~90%, natural gas ~80%, corn ~75%, currencies ~80%). Beer margin upside could come from increased volumes. Wine & Spirits margins are affected by category pressures (high-end wine/spirits declines), channel headwinds (Napa tasting rooms, Canada ban), and distributor inventory rebalancing. Structural target margins in the low 20s are still achievable over the medium term.

“From a hedging perspective, we're fairly well hedged as we enter the year in both the [indiscernible] and on currencies. For fuel, we're nearly 100% hedged; on aluminum were approximately 90% hedged; natural gas, about 80% hedged; in corn about 75% hedged. Across all of our currencies, we're right around 80% hedged as we enter the year.”

asked by Dara Mohsenian · answered by Garth Hankinson

How should we think about the cadence of the 9.5% marketing spend throughout FY27, especially with the World Cup, and is this level sustainable long-term?

Management plans aggressive investment in H1 FY27 due to momentum and the World Cup. Investments will target high-end light beer strategy (Corona Premier, Corona Light), Modelo, Pacifico, and Victoria. They believe it's the perfect time to leverage momentum, but did not explicitly confirm 9.5% as a long-term target.

“We're going to very aggressively invest against our brands in the first half of this year for a number of reasons. One is the momentum that we saw coming out of the end of the year and the momentum that we've seen in March.”

asked by Filippo Falorni · answered by William Newlands

Will there be a step-up in depreciation due to new capacity, and can you confirm FX hedging? Also, can you expand on Pacifico's role as a key growth driver through FY30 as Modelo normalizes?

Yes, a step-up in depreciation is expected as Veracruz comes online. Currency hedging is approximately 80%. Pacifico is expected to be a continuing growth driver, showing strong takeaway and broadening strength across the country, similar to Modelo's early trajectory. This does not diminish Modelo's continued potential.

“As it relates to depreciation, we are expecting a step into up in depreciation as Veracruz comes online in the middle or expected to be in the middle of our fiscal year. And then as it relates to currency hedging across all of the currencies that we hedge, we're roughly hedged at about 80%, and that's inclusive of the Mexican peso.”

asked by Chris Carey · answered by Garth Hankinson

What's next for Corona Extra given its soft trends, and how are Corona Extra and Modelo Especial performing within the general market versus higher Hispanic population areas?

Corona Extra remains a beloved brand, and investments will continue to maintain its strength, though it's not seen as the primary growth driver. The broader Corona family (Sunbrew, Familiar, Premier) is healthy. Modelo Especial showed sequential improvement in takeaway across all Hispanic quintiles in Q4, accelerating in March, driven by investments in both Hispanic and broader markets.

“Relative to Modelo, we have seen improvements as most of you know, we assess ZIP code data on a quintile basis. What's the percentage of Hispanic consumers, less than 20%, 20% to 40% and so on as you go up the ladder. We were very pleased to see coming out of the fourth quarter that all of those quintiles showed a sequential improvement in the takeaway.”

asked by Lauren Lieberman · answered by William Newlands

Clarify the Wine & Spirits target margin (north of 20%) given the withdrawn FY28 guidance, and explain the 50 bps mix drag on beer top line in Q4, including behavioral vs. new offerings.

The structural target for Wine & Spirits margins remains in the low 20s, though it will take longer to achieve. The 50 bps mix drag in beer was noted, but management did not elaborate on the specific causes (packaging type, new offerings, or consumer behavior) or assumptions for FY27 guidance.

“So as it relates to our wine and spirits target margins, we still believe that structurally, we can get those margins in the low 20s. -- again, given all the headwinds that we're facing, that's going to take us a bit longer than expected, but we still expect to achieve that over the medium term.”

asked by Nadine Sarwat · answered by Garth Hankinson