Constellation Brands posted solid shipments and depletions growth in its first quarter of fiscal year 2024. Beer shipments increased +7.5% year-over-year (YoY), to 107 million case equivalents, while depletions increased +5.5% for the three-month period ending May 31.
The increased shipments led to an +11% increase in net sales of Constellation’s beer portfolio – Mexican import brands Modelo, Corona, Pacifico and Victoria – to more than $2 billion, the company reported. Constellation pointed to “strong growth” of Modelo Especial, the Modelo Chelada portfolio, Corona Extra, Pacifico, and the “successful launch of Modeo Oro,” a lower-calorie, lower-carb light beer targeting the “better-for-you” consumer.
Constellation offered a few brand depletions highlights from the quarter:
- Modelo Especial grew depletions nearly +5%;
- Modelo Chelada brands posted nearly +40% depletions growth, and holds 65% share of the chelada segment;
- Corona Extra recorded around +1% depletion growth;
- Pacifico depletions increased more than +14%.
The company’s operating income increased +5%, however operating margin dropped 220 basis points to 38% due to increased costs of raw materials, increased marketing spend on new and existing products, and incremental depreciation and operating costs from brewery capacity expansions.
Constellation restated its guidance of net sales (+7% to +9%) and operating growth (+5% to +7%) for fiscal year 2024.
“The solid top-line performance of our beer business has reaffirmed our confidence in our annual plans and objectives and we expect our wine and spirits business to accelerate toward its fiscal ‘24 outlook throughout the balance of the year,” Constellation CFO Garth Hankinson said in a release.
Constellation’s beer, wine and spirits combined increased net sales +6% in Q1, to more than $2.5 billion. Wine and spirits recorded declines in shipments (-13.2%), depletions (-9.2%), net sales (-10%) and operating income (-13%).
Constellation also noted that its investment in Canadian cannabis firm Canopy Growth has been removed “as a reportable segment.” The company took a $123.5 million impairment on Canopy recorded in Q1 FY 2024.
A few quick hits from Constellation’s call with analysts today:
In the back half of the year, if Bud Light remains challenged, Constellation could benefit from retail shelf sets due to “growth and velocities that you’re seeing on our brands, but also the decrease that you’ve seen from some of our competitors,” CEO Bill Newlands said.
Modelo Especial overtook Bud Light as the top-selling beer in off-premise retailers, Newlands noted, referencing the four-week data that made headlines earlier this month. He noted beer business leader Jim Sabia predicted it would happen over the next couple of years, and it “happened a little sooner than we anticipated.
Although March was a challenging month, Constellation’s beer brands are accelerating at off-premise retailers. Newlands said the 12-week scans are better than the 26-week, and the four-week trends are better than the 12-week.
Modelo is posting double-digit dollar sales growth in Circana-tracked channels in several states, including Texas, Florida, Illinois, and North Carolina. California is also accelerating for Modelo after an unseasonably cold March, Newlands added. Modelo Especial posted double-digit growth in 24 states during Q1, and Modelo Chelada posted double- or triple-digit growth in 47 states in the quarter, Newlands said.
Constellation’s on-premise business not back to pre-pandemic levels. Constellation’s beer sales in bars and restaurants has proven “more volatile” than the off-premise, Newlands shared. The on-premise was 15% of Constellation’s business before the pandemic but it’s now around 13%. The company expects it to pick up over the summer.
Constellation’s beer innovations “centered around flavor and betterment consumer-led trends are off to a good start,” Newlands said. Modelo Chelada brands are a top-10 dollar share gainer and the Chelada variety pack is the No. 4 new product, per Circana, he added.
Modelo Chelada’s growth is accelerating due to packages beyond 24 oz. can singles, including 12 oz. can packs and multipacks. Newlands said Constellation can “learn a lot from some other players in the beverage arena,” such as big soda, where “if you tell me what you’ve got to spend, there’s a pack size or a pack appropriate for a particular price point.”
Corona NA is the top share gainer in the non-alcoholic beer segment in Circana-tracked channels, Newlands said.
Modelo Oro’s incrementality is better than how it performed in test markets.