Copyright Santa Rosa Press Democrat
Constellation Brands (NYSE: STZ), maker of Napa Valley’s Robert Mondavi and The Prisoner wine brands, reported a sharp decline in its wine and spirits segment in its most recent quarter, even after a big sale of lower-price wine brands earlier this year. The drop in the second quarter of fiscal 2026, ended Aug. 31, was partially offset by the New York company’s dominant beer business, which accounts for over 94% of total net sales. Net sales for the wine and spirits segment fell 65% year over year to $136 million on a reported basis, largely from the June 2 sale of mainstream brands to The Wine Group including Mondavi spinoff Woodbridge and Healdsburg’s Simi. On an organic basis, excluding the sold brands, net sales declined 19%, driven by softer consumer demand and distributor contractual changes. Operating income for the segment swung to a loss, reflecting the divestitures and ongoing market pressures. Despite the downturn, Constellation’s remaining wine portfolio showed resilience. “(O)ur (wine and spirits) portfolio outpaced the corresponding higher-end wine segment in both dollar sales and depletions during the quarter,” according to a commentary by CEO Bill Newlands and Chief Financial Officer Garth Hankinson that accompanied the Oct. 6 report. Depletions (inventory moved from wholesaler to retailer or restaurant) for wine and spirits rose 2% in the quarter, a positive shift compared to a 6.3% decline over the first six months of the fiscal year. This marks an improvement from historic trends, where the segment has faced broader industry headwinds. For instance, depletions for key brands like Kim Crawford grew at a nearly 5% compound annual growth rate since fiscal 2020, and Mi Campo spirits at nearly 33% over the same period. Constellation is weathering economic headwinds with a strategic approach to consumer insights and brand management, according to CEO Bill Newlands and Chief Financial Officer Garth Hankinson. In the company’s earnings call Oct. 6, Newlands noted what the company’s regular polling consumer sentiment found: “80% of surveyed Hispanic and non-Hispanic consumers continue to express concern about the socio-economic environment we face, and 70% of those are specifically concerned about their personal finances.” Despite these challenges, the company sees opportunities in brand performance, particularly in its remaining wine portfolio. Quarterly sales of The Prisoner, cited from data form Circana, were up 4 percentage points from a year before, with Harvey & Harriet up 23 points; Unshackled, 11 points; and Ruffino, 4 points. Newlands told analysts on the call that the company has “beaten the market for six straight months” in the wine and spirits segment. The financial impact of tariffs remains a significant consideration. Hankinson told the analysts that the company expects about $70 million in tariff impacts for the beer business and around $20 million for the wine business this fiscal year, which ends in February. Yet Constellation remains cautiously optimistic. Newlands said the focus is on long-term brand strength and consumer engagement. Organic shipments (not including those for brands recently sold or acquired) of wine and spirits, however, dipped 7.1% to the equivalent of 1.3 million 9-liter cases, versus a 76.4% total drop including the wine brand divestitures. U.S. wholesale organic shipments of wine and spirits fell 20% in the quarter, steeper than the 14.6% six-month decline. In contrast, Constellation’s beer business, led by Modelo Especial and Corona Extra, continues to dominate. It generated $2.35 billion in net sales, down 7% year over year amid aluminum tariffs and higher marketing costs. Beer shipments slipped 8.7% to 117.4 million cases, with depletions down 2.7%, yet the segment gained market share and outperformed the broader beer category. Modelo Especial maintained its position as the No. 1 beer brand in U.S. dollar sales. Companywide, quarterly net sales were down $2.48 billion, down 15% as reported or off by 8% for organic sales. Constellation reaffirmed its fiscal 2026 guidance, expecting organic enterprise net sales down 4% to 6%, with wine and spirits organic net sales declining 17% to 20% and operating income down 97% to 100%.
