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Constellation Brands reports earnings beat, strong sales in Q2

Yahoo Finance Live anchors discuss second-quarter earnings for Constellation Brands.

Video transcript

[AUDIO LOGO]

BRIAN SOZZI: Welcome back. We're a few minutes away from the opening bell in what has been a wild week for markets. But let's get into an earnings report from Modelo maker Constellation Brands. Stock in focus this morning after beating out earnings expectations on the top and bottom lines.

Guys, interesting report by Constellation Brands, driven unsurprisingly by their beer business. Operating margins up 330-basis points year-over-year. Sales strong in Corona and Modelo. A little bit weaker in the wine business. But again, that is what has usually has, I think, been the case or the dynamic in Constellation for the better part of a year.

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BRAD SMITH: Yeah, they owe some thanks to Snoop Doggy Dogg and Corona. They've had some good depletion growth as well here it seems. And that largely above as-- or largely across, as you were mentioning, Modelo and Corona.

It's also interesting that they reached an agreement today to divest a portion of their mainstream and premium wine portfolio. That includes brands like Copper & Thief, brands like Crafters Union, Dreaming Tree, Monkey Bay, 7 Moons, the list goes on. That transaction expected to close later on.

BRIAN SOZZI: Yeah, this is a company that has been-- for as long as I've been covering Constellation, very focused on improving just the state of that wine portfolio. They only want to be selling higher end wines. And this is another effort in that initiative by them.

I would also note this, too. A couple of months ago, we got a change in the share structure on how the Sands family or how much ownership they have in Constellation Brands. You have that. You have the shake up in the wine portfolio.

And I continue to believe Constellation is gearing up for a big acquisition in the liquor-- in the liquor space within the next year. They have some holes in this portfolio. Could they go out there and buy a tequila brand? I sure think they have set the stage for doing something like that at some point next year.

JULIE HYMAN: You know the one word we have not mentioned as we've talked about Constellation? Seltzer.

BRAD SMITH: Yeah.

JULIE HYMAN: We haven't talked about the hard seltzer, which has really been--

BRIAN SOZZI: Good.

JULIE HYMAN: --like a lodestone around their neck, right? Like, that that's been a big problem for them, that over inventory of seltzer, right? So I didn't see it in the release. I don't know if you saw it in the release here those--

BRIAN SOZZI: Well, it's been more-- it's been more of a Sam Adams issue. They--

JULIE HYMAN: OK.

BRIAN SOZZI: They've had the bigger overhang.

JULIE HYMAN: Constellation has seltzer--

BRIAN SOZZI: Yeah, they--

JULIE HYMAN: --too.

BRIAN SOZZI: Yes, they have the corona seltzer. Has it lived up to what they were hoping? Probably not. That's more of what's been going on with the broader industry. But for them, this is-- the stock tends to be driven by what is going on with Corona--

JULIE HYMAN: Right.

BRIAN SOZZI: --Modelo, and even Pacifico. And those businesses in this quarter look pretty good.

BRAD SMITH: Well, it really highlights the shift in tastes, not just prepandemic that we had seen, from prepandemic or 2019 into the pandemic where people were kind of opting for some of the harder spirits that were out there. In the most recent weeks, and over the past year, you've seen more of that change back to beer, because you've got more of the wholesale partners that are now re-ordering because they're stocking up their shelves in order to make sure that they've got enough of what's the people would previously order prepandemic. And so going back into the beers.

And then additionally, it's just going to be interesting to see where the wines actually get a bit from consumers as well going forward. I think that there has been such a shift and change, and even the profiles that we've seen on this next generation of consumers, some of the spine-- the wines and liquors, that they're opting for other type of mechanisms, and not necessarily just going hard, getting "blasted" every weekend like some of us would have when we first moved to New York.

BRIAN SOZZI: I tried-- recently tried I think it's Bud Light Zero. It's--

BRAD SMITH: Bud Light Zero.

BRIAN SOZZI: --unclear to me if it's actually beer. It sells-- it smells citrusy. It doesn't really do anything for me in terms of getting your buzz on. But it was nice to have like a no-carb beer, I guess.

BRAD SMITH: Yeah.

BRIAN SOZZI: I don't know. I like the can. I like can.

BRAD SMITH: No, not for me.

BRIAN SOZZI: No?

JULIE HYMAN: What's even the point?

BRIAN SOZZI: I don't know. I'm not sure.

JULIE HYMAN: I don't know. Yeah.

BRIAN SOZZI: Got to watch--

JULIE HYMAN: That doesn't sound--

BRIAN SOZZI: Got to watch the waistline.

JULIE HYMAN: --for me.

BRIAN SOZZI: You know, we're not getting any younger here. We're not getting younger.

Yeah.