Constellation Brands’ beer business topped $7.456 billion in net sales, an +11% year-over-year increase (YoY), during its 2023 fiscal year, which ended February 28, the company reported today during its full-year and fourth-quarter earnings report.
During FY2023, the company – which sells popular Mexican imports Modelo, Corona and Pacifico in the U.S. – grew both depletions and shipments, +7.5% and +6.9%, respectively. The company shipped 389.2 million case equivalents (24-pack, 12 oz. cases) during the year, recording its 13th consecutive year of volume growth.
Modelo Especial, Corona Extra, Pacifico and the Modelo Chelada brand family drove depletions growth for the year. Modelo Especial, the second best-selling beer in the U.S., posted +9% depletion growth YoY, and gained the most dollar share in the U.S. beer category. Meanwhile, the Modelo Chelada brand family increased depletions around +45% and was the top-selling chelada brand in the U.S. beer market with nearly 60% share of the subsegment.
Corona Extra depletions grew nearly +4%, and was the fourth best-selling U.S. beer brand and third largest sales share gainer in the beer category in off-premise retailers tracked by market research firm Circana (formerly IRI).
Q4 Beer Shipments -5.4%, Depletions +6.3%
Although Constellation’s beer business for the full-year was strong, Q4 saw an imbalance of shipments (sales to wholesalers) and depletions (sales to retailers). Q4 beer shipments declined -5.4% while depletions increased +6.3%. The 78.7 million case equivalents shipped during the quarter was down from 83.2 million shipped in Q4 2022 (ending February 28, 2022). Net sales for the quarter declined -2%, to nearly $1.54 billion.
In Q4, Modelo Especial posted around +6% depletion growth, while Corona Extra increased depletions +2%.
Full-year operating margin for Constellation Brands’ beer business declined 170 basis points, to 38.3%, for the year as increased pricing was “more than offset by increased [cost of goods sold], [selling general and administrative expenses], and marketing costs.” However, operating margin declined 510 basis points, to 34.1%, in Q4 as increased pricing was “more than offset by increased COGS driven by higher packing, raw materials, incremental depreciation and logistics costs, and increased SG&A driven by increased headcount to align with the momentum of our beer brands.”
FY 2024 Forecast: Beer Sales +7 to +9%
For fiscal year 2024, Constellation Brands is projecting net beer sales to increase between +7% and +9%, and operating income growth of +5% to +7%.
Constellation has had a “very strong start” to the year so far, particularly in major markets such as Texas and Florida, which have both recorded double-digit YoY increases in the first month of the fiscal year, Constellation president and CEO Bill Newlands said during today’s accompanying earnings call with investors.
California has been more of a challenge, mainly due to “extremely unusual” weather conditions in the Golden State. However, Newlands said he expects the market to return to its usual patterns in the summer months, keeping Constellation “very comfortable” with its full-year projections for 2024.
Additionally, Constellation plans to invest in more capacity in Mexico to support future beer business growth. The company expects to spend between $4 billion and $4.5 billion from fiscal 2024 to fiscal 2026 to gain as much as 30 million hectoliters of modular capacity as it constructs a new brewery in Veracruz and adds capacity to its existing breweries in Nava and Obregon.
Constellation recorded a nearly 22% depreciation increase (about $41 million) in FY23 that impacted its beer operating margins, which was “almost entirely associated” with the company’s brewery capacity investment last year. Constellation’s Mexico breweries ended the fiscal year with a capacity of approximately 42 million hectoliters (32.5 million hectoliters in Nava, and 9.5 million hectoliters in Obregon), according to CFO Garth Hankinson.
Constellation’s investment in cannabis firm Canopy continues to yield losses. The company reported that it would record a pre-tax loss of about $145 million CAD to $180 million CAD in its 2024 results.
‘Very Sensible’ Rollout for Modelo Oro
In terms of innovation focus in FY24, Constellation will continue to roll out Modelo Oro, a premium light lager, as well as Corona Non-Alcoholic and new offerings from the Modelo Chelada brand.
Constellation is being “very sensible” with the rollout of Modelo Oro, Newlands said. The brand is less than a month into national distribution, but in its three initial test markets, the brand recorded “incrementality above 60%.” Newlands said they have not seen any significant cannibalization within the portfolio from the new brand.
“It fills a gap, particularly with our core Hispanic consumer who has been looking for an alternative to some of the other light beer scenarios,” Newlands said.
The company plans to support the brand with “significant media” through the summer months, which kicked off with a March Madness campaign last month.
Modelo Chelada will expand with 12 oz. 12-packs of its best-selling Chelada Especial flavor, as well as a new spicy watermelon flavor, Sandía Picante. Constellation introduced its first Chelada 12-pack in the fall, a variety pack that featured four flavors: Mango y Chile, Naranja Picosa, Limón y Sal and Piña Picante.
Constellation revealed plans for Corona Non-Alcoholic last month at the company’s Gold Network Summit in Las Vegas. At the time, Alex Schultz, VP brand marketing, Corona family, told wholesalers the non-alc offering will be 84% incremental to the company’s portfolio.
Spring Resets ‘Doing Extremely Well,’ No Major Price Changes Expected
Constellation is “doing extremely well” this spring reset season, due to “simple good business,” Newlands said.
“With our portfolio representing more than 80% of the growth in the total beer category, it just makes sense for retailers to increase our shelf positions versus the competition,” Newlands said.
Newlands added that the company has been carefully monitoring the price elasticity of its brands following multiple higher-than-average price hikes in FY23. Constellation expects to raise prices the “normal” 1%-2%, with no plans to roll back previous raises.
“We’re very mindful that we want to keep our consumer, and our pricing strategy over time has been to be sensible and approachable to ensure that we keep our consumer,” Newlands said. “But we see absolutely no need to be rolling back pricing in any market because we think we were very appropriate in what we have done historically, which should allow us to be right back in our algorithms going forward.”
Opportunities Ahead in the On-Premise
While Constellation’s on-premise business has yet to return to pre-pandemic levels, the company “continue[s] to see acceleration” in the channel, Newlands said.
“We’re not quite back to where we were from a normal standpoint, where we sat before the pandemic, but we continue to make progress as we’re seeing more and more often that consumers are being out in the marketplace and consumer on-premise,” Newlands said. “So we remain optimistic in our growth profile.”
On-premise accounts are also looking “more for brands that resonate consistently with consumers,” which works in Constellations favor, Newlands added. He pointed to California, a “well-saturated market,” which recorded a +9% increase in Constellation tap handles in Q4.
“That’s a great reflection of the potential that still exists for us in the on-premise,” Newlands said.
Constellation’s on-premise depletions increased +15% YoY in FY23, with on-premise volume accounting for 12% of the company’s total depletions.
Portfolio Wide Business Reaches $9.45 Billion in FY 2023
Overall, Constellation Brands’ beer, wine and spirits generated $9.453 billion in net sales (+7% year-over-year) during its 2023 fiscal year. However, during Q4, the company’s sales declined -5%, to $1.998 billion.
Net sales of Constellation’s wine and spirits sales declined -4%, to more than $1.987 billion.