Constellation Brands (NYSE:STZ) executives used the company’s fiscal third-quarter 2026 earnings call to walk investors through beer profitability drivers, the near-term margin outlook, and how the company is managing capacity investments amid a softer consumer backdrop. Management also discussed distribution priorities, brand momentum for Pacifico and other extensions, and how macro pressure on Hispanic consumers continues to shape category demand.
Beer operating margins: Q3 upside driven by savings and pricing, with Q4 headwinds flagged
Responding to questions about stronger-than-expected beer operating margins in the quarter despite volume deleverage, CFO Garth Hankinson cited several offsetting factors. He said Q3 faced headwinds including volume declines, tariffs, logistics costs, and brewery maintenance. However, those pressures were offset by progress on cost savings initiatives, favorable pricing from actions taken in the spring and fall, and a year-over-year depreciation timing benefit that helped results in the quarter.
Tariffs were also cited as a larger Q4 drag, driven by multiple factors Hankinson outlined:
- Higher aluminum pricing, which increases tariff costs
- An ongoing shift in product mix toward aluminum from glass
- Tariff timing, as costs are incurred on import and then recognized through inventory as product sells through
He added that some expenses expected in Q3 shifted into Q4, creating a timing benefit in the third quarter and incremental pressure in the fourth.
Longer-term beer margin targets to be revisited in April amid weaker macro conditions
Asked whether previously communicated longer-term beer margin expectations for fiscal 2027 and 2028 still hold, Hankinson said the company will provide updated expectations on its normal cadence during the April earnings call. He noted that the guidance shared last April was based on a different macroeconomic environment, and that conditions have worsened since then—an input the company will incorporate into its planning and future guidance.
Capacity and CapEx: modular build continues, but timing can be managed around demand
Management reiterated its plan for an additional 7 million hectoliters of capacity through fiscal 2028 and described its continued use of a modular approach to brewery expansion. Hankinson said the company intends to manage capacity by controlling when assets come online, monitoring expected volume levels, and deferring capital spending where possible.
However, he cautioned that brewery projects require long-lead equipment and related commitments. As a result, the company’s fiscal 2026 plan reflects prior commitments tied to expansion, even as management continues to assess demand and the appropriate timing of bringing assets into service.
Distribution and brand execution: Pacifico growth, shelf opportunities, and on-premise momentum
CEO Bill Newlands highlighted distribution as a key lever, saying Constellation’s beer portfolio gains share in 49 of 50 states, which supports continued distribution expansion. He also noted that Modelo—despite being the number one beer by dollars in the U.S.—still has about 20% fewer points of distribution (“pods”) than broader domestic competitors, which he said leaves room for further gains.
On Pacifico, Newlands described the brand as following a path similar to Modelo’s earlier geographic expansion, building from the western U.S. and moving eastward. He said Pacifico is now the number two brand in California, skews younger than the overall portfolio, and has resonated with consumers. He also pointed to Pacifico’s share-of-voice performance on social media and said the brand has gained 1.5 points in the on-premise channel. Newlands said the company expects Pacifico to become a strong number three brand within Constellation’s portfolio over time and plans continued investment behind it.
In discussing depletions versus tracked channel data, Newlands said some regions have less tracked coverage and have been stronger on-premise. He noted that Modelo moved from number five on draft a year ago to number two today, and reiterated on-premise share gains for Pacifico as well.
Consumer and category: Hispanic pressure persists; pricing and pack architecture adjustments continue
Management repeatedly returned to macro pressure on Hispanic consumers as a major driver of category softness. Newlands said internal work tracking consumer behavior by ZIP code continues to show challenging conditions in areas with higher Hispanic representation, while areas with lower Hispanic representation have seen some improvement. He described volatility market by market, influenced in part by immigration policy developments, and said this volatility makes forecasting difficult.
He said the company remains focused on “controlling the controllables,” including distribution, pricing and pack architecture, and initiatives supporting key brands (including Pacifico and Victoria, as well as Modelo Draft and non-alcohol offerings such as Corona Sunbrew and Corona Non-Alcoholic).
On pricing, Newlands said the company continues to project beer pricing in the 1% to 2% range, varying based on market conditions. He discussed recent pricing adjustments for Modelo Oro and Corona Premier to align more closely with the price point consumers expect for light beers, and said trends for both brands have improved. He also pointed to pack architecture changes, including the introduction of seven-ounce formats in certain states, aimed at meeting consumer needs amid heightened price sensitivity.
On the outlook for major beer occasions, Newlands said the World Cup should represent an opportunity given its relevance as a “beer moment” and its over-indexing among Hispanic consumers. While noting the company is not a sponsor, he said Constellation expects to support the occasion with promotions, shelf and floor presence, and media consistent with its broader sports investment approach.
About Constellation Brands (NYSE:STZ)
Constellation Brands, Inc is a leading producer and marketer of beer, wine and spirits, with operations spanning production, importation, marketing and distribution. The company’s beverage portfolio includes a range of premium and mainstream wines and spirits alongside major imported beer brands; in the U.S. market Constellation is widely known for its role in bringing Mexican imports such as Corona and Modelo to American consumers. Constellation supplies retail, on‑premise and foodservice channels and supports its brands with national sales and marketing platforms and supply‑chain capabilities.
The company traces its roots to the Canandaigua Wine Company, founded by Marvin Sands in 1945, and evolved through organic growth and acquisition into a diversified beverage company.
