Berkshire Bet Constellation Cuts Guidance: Why Shares Rose 8%
The maker of top Mexican beer brands like Corona, Modelo, and Pacifico saw a significant gain after posting its latest earnings report. However, this move may not be what it initially appears. In light of recent gains in Constellation and the firm’s latest results, is the stock still a value, or could its rebound be hitting a ceiling?
Constellation Beats During Quarter, But Guidance Is Concerning
In its latest quarter, Constellation reported revenue of $1.92 billion, equating to a drop of over 11% year-over-year (YOY). Still, against low expectations, Constellation beat, as analysts forecasted revenue of $1.84 billion.
The company also posted a solid beat on comparable earnings per share (EPS). The figure came in at $1.90, surpassing estimates of $1.74. However, comparable EPS fell by nearly 28% YOY.
The company’s “comparable” EPS adjusts for significant divestments made in fiscal year 2025 (FY2025), including certain wine and spirits franchises. Removing these franchises allows investors to compare the performances of business lines that still remain part of the company. While these beats were good to see, the company’s guidance was a different story.
After this report, Constellation enters FY2027, as its fiscal year is several quarters ahead of the calendar year. In FY2027, Constellation expects to generate comparable EPS of $11.20 to $11.90, or $11.55 at the midpoint. Using this midpoint figure implies a decline of 2% YOY compared to Constellation’s FY2026 comparable EPS of $11.82. Guidance sorely missed estimates of $12.38, which projected an increase of approximately 5% YOY. The company also withdrew its guidance for FY2028, which it provided around this time last year.
Constellation’s guidance is quite clearly moving in the wrong direction and is not lining up with expectations set during April 2025. At that time, the firm projected that comparable EPS would grow at a “mid-single digits to low-double digits” compound annual growth rate from FY2026 to FY2028.
Now, the firm is projecting another year of negative growth, after full-year comparable EPS already fell by 14% in FY2026. Removing its FY2028 outlook does not provide confidence that this trend will reverse. Considering this, it’s curious why shares climbed over 8% the day after its earnings report.
Squaring Constellation’s 8% Up-Move: CEO Statements Outweigh Guidance
Some may attribute Constellation’s gain to the company beating estimates during the quarter. However, oftentimes, guidance holds just as much weight as actual results. Notably, while the firm beat estimates on comparable EPS by 16 cents in its latest quarter, it missed on next year’s guidance by a whopping 83 cents.
Thus, overall, the company expects to generate 67 cents less in comparable EPS over five quarters (the latest plus FY2027) than analysts expected. Furthermore, guidance withdrawals are not typically considered positive. These factors don’t square up with the stock’s significant gain.
It seems that some investors are hanging their hats on statements made by CEO Bill Newlands. According to the Wall Street Journal, Newlands made encouraging remarks in an interview regarding Constellation’s Hispanic customers. Newlands said, “It’s too early to declare victory, but the trends have been more positive.” This suggests that beer sales among this group are improving. Hispanic Americans represent around 50% of Constellation’s customer base.
The company made some similar statements in its earnings commentary, saying that while “zip codes with larger Hispanic populations continued to weigh on overall portfolio performance, the impact moderated during the quarter as the rate of decline in those areas improved.”
Still, the company’s guidance update does not indicate confidence. One way to take this is that Constellation is being highly conservative with its guidance. Although it sees trends among Hispanics improving, it is not enough to justify keeping its guidance steady at this point. Overall, these factors signal an elevated level of uncertainty, and it is difficult to see Constellation’s gain as fully justified.
Constellation: Focus Turns to the Future of Hispanic Rebound
Amid this, Constellation appears neither significantly overvalued nor undervalued. Its valuation still implies low growth over a multi-year period. This is achievable, should the beer industry and consumption among Hispanics stage a moderate rebound. Still, it is hard to feel comfortable with this assumption, given that Constellation felt concerned enough to pull its FY2028 outlook. The coming quarters should help provide a better indication of whether improving trends among Hispanic Americans can reach an inflection point.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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