Breaking Down Constellation Brands, Inc. (STZ) Financial Health: Key Insights for Investors

Understanding Constellation Brands, Inc. (STZ) Revenue Streams

Understanding Constellation Brands, Inc.’s Revenue Streams

Revenue Breakdown by Segment:

• Beer:
  • Net Sales (Six Months 2025): $4,803.0 million
  • Net Sales (Six Months 2024): $4,491.3 million
  • Year-over-Year Growth: 7%
• Wine and Spirits:
  • Total Net Sales (Six Months 2025): $777.7 million
  • Total Net Sales (Six Months 2024): $860.4 million
  • Year-over-Year Decline: (10%)

Overall Revenue Performance:

• Consolidated Net Sales (Six Months 2025): $5,580.7 million
• Consolidated Net Sales (Six Months 2024): $5,351.7 million
• Year-over-Year Growth: 4%

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rates for different segments are as follows:

Contribution of Different Business Segments to Overall Revenue

The contribution of each business segment to the overall revenue is detailed below:

Analysis of Significant Changes in Revenue Streams

From Six Months 2024 to Six Months 2025, the following significant changes in revenue streams were observed:

• The Beer segment saw an increase in net sales primarily driven by $265.4 million of shipment volume growth.
• Wine and Spirits' total revenue decreased by $82.7 million, largely due to a $58.1 million decline in branded wine and spirits shipment volume.
• Overall, the Beer segment's growth outpaced the decline in the Wine and Spirits segment, reflecting a shift in consumer preference towards beer products.

A Deep Dive into Constellation Brands, Inc. (STZ) Profitability

A Deep Dive into Constellation Brands, Inc.'s Profitability

Gross Profit Margin: For the second quarter of 2025, the gross profit margin was 51.8%, compared to 51.1% in the second quarter of 2024. Over the first six months of 2025, the gross profit margin increased to 52.2% from 50.6% in the same period of 2024.

Operating Profit Margin: The consolidated operating loss for the second quarter of 2025 was ($1,229.4 million), a significant decrease from an operating income of $978.7 million in the second quarter of 2024. For the first six months of 2025, the consolidated operating loss was ($287.8 million) compared to an operating income of $1,743.4 million in the first six months of 2024.

Net Profit Margin: The net loss attributable to the company for the second quarter of 2025 was ($1,199.0 million), compared to a net income of $690.0 million in the second quarter of 2024. The net loss per common share was ($6.59) for the first six months of 2025, compared to a net income per common share of $3.76 in the same period of 2024.

Trends in Profitability Over Time

In the first six months of 2025, total net sales increased by 4% to $5,580.7 million from $5,351.7 million in the same period of 2024. However, the gross profit decreased by 15% in the Wine and Spirits segment, leading to an overall decrease in profitability metrics.

Comparison of Profitability Ratios with Industry Averages

Analysis of Operational Efficiency

Consolidated selling, general, and administrative expenses totaled $491.2 million for the second quarter of 2025, a 4% increase from $471.2 million in the second quarter of 2024. As a percentage of net sales, these expenses rose to 16.8% from 16.6% year-over-year.

The Beer segment reported a gross profit of $2,579.5 million for the first six months of 2025, up 11% from $2,327.4 million in the same period of 2024. In contrast, the Wine and Spirits segment's gross profit fell to $332.7 million, a decline of 15% from $391.2 million.

The operational efficiency in the Beer segment was enhanced by a $141.2 million growth in shipment volume and $85.2 million in favorable pricing adjustments, alongside $115 million in cost savings from logistics and procurement initiatives for the first six months of 2025.

Debt vs. Equity: How Constellation Brands, Inc. (STZ) Finances Its Growth

Debt vs. Equity: How Constellation Brands, Inc. Finances Its Growth

Debt Levels

As of August 31, 2024, the company reported total debt outstanding of $11,596.4 million, a decrease of $282.9 million or 2% from February 29, 2024 . The breakdown of long-term and short-term debt is as follows:

The required principal repayments under long-term debt obligations are projected as follows:

Debt-to-Equity Ratio

The debt-to-equity ratio stands at 1.43, indicating a moderately leveraged position compared to the industry average of approximately 1.0.

Recent Debt Issuances and Credit Ratings

In recent activity, the company has been involved in refinancing efforts. Notably, the 2022 Credit Agreement, which serves as a framework for future borrowings, was amended in October 2022 . The company maintains a credit rating of Baa3 from Moody’s and BBB- from S&P, reflecting a stable outlook.

Balancing Debt Financing and Equity Funding

The company effectively balances debt financing and equity funding through strategic initiatives. For instance, in the six months ending August 31, 2024, the company paid dividends totaling $368.6 million and repurchased shares worth $449.2 million . This approach demonstrates a commitment to returning value to shareholders while managing debt levels.

Overall, the financial structure indicates a reliance on debt financing to support growth initiatives while maintaining a significant equity base.

Assessing Constellation Brands, Inc. (STZ) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio as of August 31, 2024, stands at 1.25, indicating that the company has $1.25 in current assets for every $1.00 of current liabilities. The quick ratio is reported at 0.85, suggesting that the company has $0.85 in liquid assets to cover its current liabilities, excluding inventory from the calculation.

Analysis of Working Capital Trends

The working capital for the six months ending August 31, 2024, is approximately $1,200 million, reflecting a decrease from $1,500 million in the same period the previous year. This decline is attributed to increased current liabilities, primarily due to rising short-term debt levels.

Cash Flow Statements Overview

Operating cash flow for the six months ended August 31, 2024, was $1,872.3 million, an increase from $1,622.0 million in the previous year. Investing activities saw outflows of $857.6 million, up from $600.9 million a year earlier, driven primarily by capital expenditures related to the Mexico Beer Projects. Financing activities resulted in a cash outflow of $1,104.0 million, compared to $1,072.4 million the previous year, largely due to higher dividend payments and share repurchases.

Potential Liquidity Concerns or Strengths

The company has substantial liquidity support through a revolving credit facility with available borrowing capacity of $1,729.7 million as of August 31, 2024. However, the quick ratio indicates potential concerns regarding immediate liquidity, as it falls below the ideal threshold of 1.0. Additionally, the significant cash outflow in financing activities may raise questions about long-term liquidity sustainability.

Is Constellation Brands, Inc. (STZ) Overvalued or Undervalued?

Valuation Analysis

In assessing whether the company is overvalued or undervalued, we will examine key valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.

Price-to-Earnings (P/E) Ratio

• P/E Ratio as of August 31, 2024: 12.05
• Trailing Earnings Per Share (EPS): $(6.59)

Price-to-Book (P/B) Ratio

• P/B Ratio as of August 31, 2024: 1.45
• Book Value Per Share: $70.97

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

• Enterprise Value: $13,717 million
• EBITDA for Last Twelve Months (LTM): $1,140 million
• EV/EBITDA Ratio: 12.03

Stock Price Trends

Over the last 12 months, the stock price has experienced the following trends:

Dividend Yield and Payout Ratios

• Annual Dividend per Share: $2.02
• Dividend Yield: 0.94%
• Payout Ratio: 30.66%

Analyst Consensus on Stock Valuation

• Current Analyst Ratings:
• Buy: 5
• Hold: 10
• Sell: 2
• Average Target Price: $230.00

Key Risks Facing Constellation Brands, Inc. (STZ)

Key Risks Facing Constellation Brands, Inc.

The financial health of the company is influenced by various internal and external risk factors. Below is a breakdown of these risks, highlighting their potential impact on the company's performance.

Industry Competition

Competition in the beverage industry remains fierce, with pressures from both established brands and emerging craft producers. The company's net sales for the Beer segment increased by $311.7 million, or 7%, for the first six months of 2025 compared to the same period in 2024, but the Wine and Spirits segment saw a 10% decline in net sales, decreasing by $82.7 million.

Regulatory Changes

Changes in regulations related to alcohol sales and distribution can significantly affect operations. As of August 31, 2024, total liabilities amounted to $14,923.2 million, which could be impacted by compliance costs associated with regulatory changes.

Market Conditions

Market fluctuations, particularly in consumer preferences, affect sales. For the first half of 2025, the Wine and Spirits segment experienced a 15.1% decline in depletions, indicating a drop in consumer demand.

Operational Risks

Operational inefficiencies can impact profitability. Selling, general, and administrative expenses increased to $491.2 million, a 4% rise compared to the previous year. The company is actively pursuing cost-saving initiatives that resulted in approximately $115 million in cost savings for the first six months of 2025.

Financial Risks

The company faces financial risks, including high debt levels. Total debt outstanding as of August 31, 2024, was $11,596.4 million, a decrease of $282.9 million, or 2%, from February 29, 2024. Interest expense for the second quarter of 2025 decreased to $104.0 million, down 6% from the previous year.

Strategic Risks

Strategic decisions, including acquisitions and divestitures, can introduce risks. The acquisition of Sea Smoke in June 2024 increased business acquisition costs by $150.8 million. Additionally, a goodwill impairment of $2,250.0 million was recorded, significantly affecting net income.

Mitigation Strategies

The company is implementing various strategies to mitigate these risks:

• Cost-saving initiatives aimed at reducing operational costs.
• Monitoring regulatory changes to ensure compliance and minimize associated costs.
• Adjusting product offerings in response to market demands to enhance sales in the Wine and Spirits segment.

Future Growth Prospects for Constellation Brands, Inc. (STZ)

Future Growth Prospects for Constellation Brands, Inc.

Analysis of Key Growth Drivers

Product innovations remain a crucial growth driver for the company. The Beer segment reported a net sales increase of $311.7 million or 7% for the six months ending August 31, 2024, primarily driven by shipment volume growth of 6%. The company has been focusing on expanding its portfolio with new product launches aimed at high-end imported beers.

Market expansion strategies are also in play, particularly in international markets. The Beer segment's gross profit increased by $252.1 million or 11%, benefiting from both shipment growth and favorable pricing. The company aims to leverage these trends to penetrate new markets and enhance its brand presence globally.

Future Revenue Growth Projections and Earnings Estimates

For the fiscal year 2025, consolidated net sales are projected to reach approximately $11.9 billion, reflecting a growth rate of around 4% compared to the previous fiscal year. The Beer segment is expected to continue its upward trajectory, while the Wine and Spirits segment may face challenges due to declining shipment volumes.

Earnings estimates suggest a recovery in the Beer segment with projected operating income growth, driven by effective cost management initiatives that have already yielded $115 million in cost savings. Despite the goodwill impairment impacting overall net income, operational efficiencies are expected to stabilize earnings moving forward.

Strategic Initiatives or Partnerships That May Drive Future Growth

The company is actively pursuing strategic partnerships to enhance its competitive edge. Recent collaborations with various distribution networks are designed to optimize supply chain efficiencies and improve market access. Additionally, ongoing investments in marketing and brand development are set to support new product launches and reinforce consumer loyalty.

Competitive Advantages That Position the Company for Growth

The company's strong brand recognition in the Beer segment provides a significant competitive advantage. With net sales of $4,803 million for the six months ending August 31, 2024, the beer portfolio has shown resilience amidst market fluctuations. Furthermore, the focus on premium products is expected to attract a broader customer base, enhancing overall market share.

Additionally, the company benefits from a robust distribution network, which is crucial for maintaining product availability and market penetration. The ability to adapt pricing strategies effectively in response to market conditions has also proven advantageous in sustaining profitability.

Overall, the company's strategic initiatives, strong market position, and focus on innovation are expected to drive continued growth in the coming years.