Constellation Brands, Inc.

Company Overview

Business Model: Constellation Brands, Inc. operates as an international producer and marketer of beer, wine, and spirits. The company's mission is to build brands that people love, focusing on delivering industry-leading total stockholder returns through strong brands, consumer-obsessed innovation, disciplined capital deployment, impactful ESG initiatives, and best-in-class operational efficiency. It is one of the fastest-growing, large CPG companies in the U.S. at retail.

Market Position: Constellation Brands, Inc. is the second-largest beer company in the U.S. and holds the #1 beer brand, Modelo Especial, in dollar sales. It is the #1 share gainer in both the high-end beer segment and the overall U.S. beer market. The company possesses an exclusive, perpetual sub-license to import, market, and sell its Mexican beer brands across all 50 U.S. states. In its wine and spirits segment, the company is repositioning its portfolio to exclusively higher-end brands, aligning with consumer-led premiumization trends.

Recent Strategic Developments:

• 2025 Wine Divestitures Transaction: In April 2025, Constellation Brands, Inc. entered into a definitive agreement to divest and license trademarks for a portion of its wine and spirits business, primarily mainstream wine brands, for $900 million. This transaction is expected to close immediately following the end of the first quarter of Fiscal 2026. As of February 28, 2025, $879.8 million of wine and spirits net assets were reclassified to held for sale, resulting in a $478.0 million impairment in Fiscal 2025.
• 2025 Restructuring Initiative: An enterprise-wide cost savings and restructuring initiative was implemented, targeting over $200 million in net annualized cost savings by Fiscal 2028. The majority of the work is expected to be completed in Fiscal 2026, with estimated cumulative pre-tax costs of $80 million to $100 million. In Fiscal 2025, $46.9 million of pre-tax employee termination costs and $2.8 million of pre-tax consulting services costs were recognized.
• SVEDKA Divestiture: On January 6, 2025, the SVEDKA brand and related assets were sold, generating $409.2 million in cash proceeds and a $266.0 million net gain in Fiscal 2025.
• Sea Smoke Acquisition: In June 2024, Constellation Brands, Inc. acquired the Sea Smoke business, a California-based luxury wine brand, vineyards, and production facility, for $158.7 million, net of adjustments.
• Nelson’s Green Brier Investment: In October 2024, the remaining 25% noncontrolling interest in Nelson’s Green Brier, a Tennessee-based craft bourbon and whiskey portfolio, was purchased.
• Canopy Investment: In April 2024, 17.1 million Canopy common shares were converted into Exchangeable Shares, and C$81.2 million of the 2023 Canopy Promissory Note was exchanged for 9.1 million Exchangeable Shares. This resulted in 26.3 million Exchangeable Shares and an $83.3 million net gain in Fiscal 2025, alongside a $76.1 million impairment on Exchangeable Shares.

Geographic Footprint: Constellation Brands, Inc. operates in the U.S., Mexico, New Zealand, and Italy. Its wine and spirits are primarily marketed in the U.S. and also sold in Australia, Canada, Italy, New Zealand, and other major world markets.

• Net Sales by Geography (Fiscal 2025): U.S. net sales were $10,016.4 million, representing approximately 98% of total net sales. Non-U.S. net sales were $192.3 million (primarily Canada and Italy), representing approximately 2% of total net sales.
• Long-lived Tangible Assets by Geography (Fiscal 2025): Non-U.S. assets (primarily Mexico) totaled $6,510.9 million, while U.S. assets were $898.9 million.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 52.1% (FY25), 50.4% (FY24)
• Operating Margin: 3.5% (FY25), 31.8% (FY24)
• Net Margin: -0.8% (FY25), 17.3% (FY24)

Investment in Growth:

• R&D Expenditure: Marketing expense, which supports brand growth and innovation, was $931.2 million in Fiscal 2025, representing 9.1% of total revenue.
• Capital Expenditures: $1,214.1 million in Fiscal 2025.
• Strategic Investments: Approximately $940 million was spent on Mexico Beer Projects in Fiscal 2025, with an estimated $2 billion expected for these projects over Fiscal 2026 through Fiscal 2028. The Sea Smoke acquisition in June 2024 was for $158.7 million.

Business Segment Analysis

Beer

Financial Performance:

• Revenue: $8,539.8 million (+5% YoY) in Fiscal 2025.
• Operating Margin: 39.7% in Fiscal 2025.
• Key Growth Drivers: The Fiscal 2025 net sales increase was driven by $264.2 million in shipment volume growth and $168.1 million from favorable pricing, partially offset by $55.1 million from unfavorable product mix. Gross profit increased due to favorable pricing, shipment volume growth, and $75.8 million reduced cost of product sold, which included $41.0 million from favorable fixed cost absorption and $38.8 million from decreased transportation costs. Cost savings initiatives contributed over $200 million in Fiscal 2025. Marketing spend increased by $80.5 million.

Product Portfolio:

• Major Product Lines: Modelo Especial, Modelo Oro, Modelo Chelada, Modelo Spiked Aguas Frescas, Modelo Negra, Corona Extra, Corona Non-Alcoholic, Corona Familiar, Corona Premier, Corona Light, Corona Sunbrew, Pacifico, Victoria, Vicky Chamoy.
• New Product Launches (Fiscal 2025): Two additional pack sizes of Modelo Oro, Modelo Chelada Fresa Picante, Modelo Chelada Negra con Chile (select markets), and Corona Sunbrew (select markets).
• New Product Launches (Fiscal 2026): Corona Sunbrew nationwide.

Market Dynamics:

• Constellation Brands, Inc. is the #1 brewer and seller of imported beer in the U.S. and a leader in the high-end segment. Modelo Especial was the best-selling beer overall in the U.S. Corona Extra was the second largest imported beer and fifth best-selling beer overall. Pacifico and Victoria were the top two fastest-growing major imported beer brands. Modelo Chelada brands are the leading chelada in the U.S. beer market.

Wine and Spirits

Financial Performance:

• Revenue: $1,668.9 million (-7% YoY) in Fiscal 2025. Wine revenue was $1,450.1 million (-7% YoY) and Spirits revenue was $218.8 million (-11% YoY).
• Operating Margin: 19.5% in Fiscal 2025.
• Key Growth Drivers: The Fiscal 2025 net sales decrease was primarily due to a $107.7 million decline in organic net sales and $22.6 million from the SVEDKA Divestiture. The organic decline was driven by a $93.5 million decrease in branded shipment volume, a $30.1 million decrease in non-branded net sales (bulk wine), and a $16.1 million decrease from pricing actions, partially offset by $29.9 million in higher contractual distributor payments. Gross profit decreased due to an $83.1 million organic decline and $10.7 million from the SVEDKA Divestiture. Selling, general, and administrative expenses decreased by $20.2 million.

Product Portfolio:

• Wine Brands: Kim Crawford, Mount Veeder, Sea Smoke, Robert Mondavi Winery, Ruffino, My Favorite Neighbor, Schrader Cellars, The Prisoner Wine Company.
• Spirits Brands: Austin Cocktails, Casa Noble, High West, Mi CAMPO, Nelson’s Green Brier.
• The 2025 Wine Divestitures Transaction includes brands such as Meiomi and SIMI.

Market Dynamics:

• Constellation Brands, Inc. positions itself as a higher-end wine and spirits company in the U.S. market. Kim Crawford ranked 10th among the top-selling higher-end wine brands in the U.S. The broader wine category experienced deceleration in Fiscal 2025 in U.S. wholesale and international markets, particularly in lower price points. The direct-to-consumer (DTC) channel represented 16% of total Wine and Spirits net sales in Fiscal 2025. The company has a contractual arrangement with Southern Glazer’s Wine and Spirits, which represents approximately 60% of its U.S. branded wine and spirits volume.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: In Fiscal 2025, Constellation Brands, Inc. repurchased 5,252,003 shares of Class A Stock for $1,123.8 million (average $213.98 per share). Subsequent to February 28, 2025, an additional 494,094 shares were repurchased for $91.7 million. In April 2025, the Board authorized a new $4.0 billion share repurchase program (2025 Authorization), expiring in February 2028, with $3,908.3 million remaining available as of April 23, 2025. The company expects to return $4.0 billion in share repurchases over the next three fiscal years.
• Dividend Payments: Dividends paid totaled $731.8 million in Fiscal 2025. Cash dividends declared per Class A Stock share were $4.04 in Fiscal 2025. The company expects to return approximately $720 million to stockholders in Fiscal 2026 through cash dividends.

Balance Sheet Position:

• Cash and Equivalents: $68.1 million as of February 28, 2025.
• Total Debt: $11,497.7 million as of February 28, 2025, comprising $806.7 million in short-term borrowings and $10,691.0 million in long-term debt (including current maturities).
• Net Cash Position: -$11,429.6 million as of February 28, 2025.
• Debt Maturity Profile: Required principal repayments for long-term debt are $1,404.1 million in Fiscal 2026, $603.2 million in Fiscal 2027, $1,801.3 million in Fiscal 2028, $900.0 million in Fiscal 2029, $800.0 million in Fiscal 2030, and $5,250.1 million thereafter, totaling $10,758.7 million. The company has a $2.25 billion revolving credit facility, with $1,430.7 million remaining borrowing capacity as of February 28, 2025. Financial covenants include a minimum interest coverage ratio of 2.5x and a maximum net leverage ratio of 4.0x.

Cash Flow Generation:

• Operating Cash Flow: $3,152.2 million in Fiscal 2025.
• Calculated Free Cash Flow: $1,938.1 million in Fiscal 2025 (Operating Cash Flow less Capital Expenditures).

Operational Excellence

Production & Service Model: Constellation Brands, Inc. operates breweries, wineries, distilleries, and bottling plants across the U.S., Mexico, New Zealand, and Italy. The company sources grapes from approximately 350 independent growers in the U.S. and 35 in New Zealand and Italy. As of February 28, 2025, it owned or leased approximately 18,000 acres of vineyards in these regions, which is expected to reduce to approximately 11,400 acres after the 2025 Wine Divestitures Transaction. California vineyards adhere to Sustainable Grape Growing Certifications.

Supply Chain Architecture: Key components for Mexican beer production include water, yeast, grains, glass, aluminum, and cardboard, with packaging materials being the largest cost component. The company's equally-owned joint venture with Owens-Illinois operates a Glass Plant in Nava, Mexico, which supplies nearly 60% of the total annual glass bottle supply for its Mexican beer brands. One producer supplies most of the U.S. wine and spirits glass container requirements.

Facility Network:

• Manufacturing: Mexican breweries include the Nava Brewery and Obregón Brewery. A new Veracruz Brewery is under construction, with initial production expected in late Fiscal 2026 or early Fiscal 2027. The company operates 12 U.S. wineries (expected to be 9 after the 2025 Wine Divestitures Transaction), 2 in New Zealand, 5 in Italy, and 4 U.S. distilleries.
• Distribution: Key leased warehouses are located in Arlington, Texas; Hutchins, Texas; Jacksonville, Florida; and Jurupa Valley, California. The company also operates the Lodi Distribution Center in Lodi, California.

Operational Metrics:

• Mexican breweries production capacity was approximately 48 million hectoliters as of February 28, 2025, with plans to increase to approximately 55 million hectoliters by the end of Fiscal 2028.
• Capitalized interest for Mexico Beer Projects was $74.2 million in Fiscal 2025.
• Glass bottles comprised over 95% of the wine and spirits portfolio volume's cost of product sold in Fiscal 2025.
• The company's work-related injury recordable incident rate was 0.6 in Fiscal 2025, which is below the industry average of 1.8.

Market Access & Customer Relationships

Go-to-Market Strategy: Constellation Brands, Inc. utilizes separate distribution networks for its beer and wine and spirits portfolios in the U.S., primarily through wholesale distributors and state alcohol beverage control agencies. The company is expanding its market access through direct-to-consumer (DTC) channels and 3-tier eCommerce. Marketing activities encompass market research, advertising, promotions, event sponsorship, and public relations, targeting legal drinking age consumers.

Customer Portfolio:

• Customer Concentration: Net sales to the 10 largest customers represented approximately 59% in Fiscal 2025. Reyes Beer Division entities accounted for 25.4% of net sales, and Southern Glazer’s Wine and Spirits accounted for 11.2% of net sales in Fiscal 2025.

Geographic Revenue Distribution:

• U.S.: 98% of total revenue in Fiscal 2025.
• Non-U.S.: 2% of total revenue in Fiscal 2025, primarily from Canada and Italy.

Competitive Intelligence

Market Structure & Dynamics

The beverage alcohol industry is highly competitive, with Constellation Brands, Inc. competing on quality, price, brand recognition, reputation, and distribution strength against multinational producers and distributors. Market dynamics include evolving consumer demand, non-structural socioeconomic factors such as subdued spending, value-seeking behavior, reduced discretionary income, elevated unemployment, and inflation. Global supply chain disruptions and retailer destocking in the wine and spirits segment also influence the market. The broader wine category experienced deceleration in Fiscal 2025.

Competitive Positioning Matrix:

Direct Competitors

• Beer: Anheuser-Busch InBev, The Boston Beer Company, Heineken, Mark Anthony, Molson Coors.
• Wine: Deutsch Family Wine & Spirits, Duckhorn Portfolio, GALLO, Ste. Michelle Wine Estates, Treasury Wine Estates, Trinchero Family Estates, The Wine Group.
• Spirits: Bacardi USA, Brown-Forman, Diageo, Fifth Generation, GALLO, Pernod Ricard, Sazerac Company, Suntory Global Spirits.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: Potential declines in consumption of beverage alcohol, particularly Mexican beer brands, due to shifts in consumer preferences (e.g., health concerns, GLP-1 drugs, cannabis substitution), adverse economic conditions, and geopolitical events.
• Customer Concentration: The top 10 customers represent approximately 59% of net sales in Fiscal 2025, with Reyes Beer Division entities and Southern Glazer’s Wine and Spirits being major customers, posing concentration risk.

Operational & Execution Risks

• Supply Chain Vulnerabilities: Dependence on quality water, agricultural, and packaging materials. Risks include water scarcity, climate change impacts, and general supply chain disruptions that could increase costs or constrain operations. The company relies on its equally-owned joint venture with Owens-Illinois for nearly 60% of its Mexican beer glass bottles and one primary producer for most U.S. wine and spirits glass.
• Capacity Constraints: Dependence on current Mexican breweries for production, with multi-billion dollar expansion projects carrying risks of delays, cost overruns, and asset impairments.
• Operational Disruptions: Risks of catastrophic loss or disruption at production facilities (e.g., Mexican breweries, Glass Plant) from natural disasters, labor strikes, or cyberattacks.
• Environmental Sustainability: Evolving ESG regulations and potential failure to meet environmental targets (water withdrawals, GHG emissions, waste reduction, circular packaging) could lead to increased costs or reputational damage.

Financial & Regulatory Risks

• Market & Financial Risks: Constellation Brands, Inc. has $11,497.7 million in total debt as of February 28, 2025, exposing it to interest rate fluctuations. Covenants in its 2022 Credit Agreement restrict certain activities and require maintaining a minimum interest coverage ratio of 2.5x and a maximum net leverage ratio of 4.0x.
• Regulatory & Compliance Risks: The company is subject to extensive beverage alcohol industry regulations and environmental laws. U.S. tariffs were imposed on imports from Mexico, the European Union (including Italy), and New Zealand in April 2025, with retaliatory tariffs from Canada in March 2025.
• Legal Proceedings: Constellation Brands, Inc. is a defendant in a putative class action, Meza v. Constellation Brands, Inc., et al. (W.D.N.Y., filed Feb 18, 2025), alleging securities law violations and misleading statements regarding its Wine and Spirits business. Two derivative complaints, Silva v. Newlands, et al. (W.D.N.Y., filed Mar 24, 2025) and Mason v. Newlands, et al. (W.D.N.Y., filed Apr 21, 2025), make similar allegations against current and former directors and officers.
• Intangible Assets: The company recognized a $2,740.7 million goodwill impairment and a $57.0 million trademark impairment in Fiscal 2025, primarily related to the Wine and Spirits business.
• Tax Strategy: The effective tax rate was 62.4% in Fiscal 2025, significantly higher than 20.6% in Fiscal 2024, indicating volatility. The Inflation Reduction Act of 2022 imposes a 1% excise tax on share repurchases.

Innovation & Technology Leadership

Research & Development Focus: Constellation Brands, Inc. emphasizes consumer-led innovation, particularly in its beer segment, through the creation of new line extensions and new-to-world brands. The company is also undertaking a multi-year Digital Business Acceleration initiative to enhance technology capabilities. In Fiscal 2025, this initiative focused on end-to-end digital supply chain planning, logistics, procurement, and revenue growth management. In Fiscal 2026, it plans to expand to include consumer insights and analytics.

Intellectual Property Portfolio: The company relies on a portfolio of trademarks, including an exclusive, perpetual sub-license to import, market, and sell its Mexican beer brands in the U.S. Constellation Brands, Inc. has been and may continue to be subject to litigation related to intellectual property rights.

Leadership & Governance

Executive Leadership Team (as of April 23, 2025)