Ca$htag$: Can Modelo and Pacifico Save Constellation Brands Earnings?

SPEAKER_1 (0:00)

Time now for our Cash Tag segment. For that, let's bring in our next guest, and that is Andy Swan, co-founder of LikeFolio, taking a look at Constellation Brands ahead of its quarterly results. All right, so you've got new sentiment data. Those shares have been under pressure on a year-over-year, year-to-day basis, kind of a hangover, if you will.

Let's get into your latest sentiment data. What does that look like, Andy?

Andy Swan (0:22)

Yeah, it's very clear. It's not news to anyone, I think, at this point, that people are drinking less. In fact, on X, we're seeing posts about cutting back on drinking or stopping drinking up 11 percent year-over-year. So this entire industry is under pressure. We think the biggest factor moving forward is the portfolio of brands that these companies have. For Constellation, they're in a really good spot. They have the beers that people are flocking to, I think 94 percent of their revenue now comes from beer. When we zoom in on a brand-by-brand comparison, when you look at Pacifico and Modelo, both of those seeing year-over-year gains in terms of consumer demand, consumer chatter, etc., while domestics like Bud Light, Coors Light, McUltra are all down. So we think Constellation has the right lineup here.

Consumers are flocking away from craft beers and IPAs and finding their home, especially with Modelo and Pacifico here. So a good portfolio to move forward with in a very challenging environment is how we sum things up for Constellation Brands here.

SPEAKER_3 (1:42)

Hey, Andy, quick question about this.

Because of the fact that we've seen a massive pullback, maybe the younger generation isn't drinking as much, maybe the older generation isn't drinking as much. The stock has sold off pretty significantly in your multi-year lows at this point. So it seems like interests in the shares are down. But is this that cyclical type of environment where, hey, you know what? I've seen it by me, a lot of maybe craft brewers or small neighborhood breweries are closing rapidly at this point, where it kind of dilutes everything after there's maybe too many. Do you see any data that says, hey, as those small businesses close, the behemoths in the spot, which is Constellation, are just going to pick up the pieces and maybe the sell-offs are unwarranted at this point?

Andy Swan (2:33)

Yeah, I think that is a fantastic point. It's one of the key findings when we look into qualitatively the data here, and that is a lot of people talking about the IPAs that they used to drink, the craft beers that they used to drink, the fact that they were spending so much money per drink on each of these craft and IPA bottles, and instead finding that the Modellos of the world are essentially serving that same purpose for them at a lower price. So there's a little bit of a flight to value here as well for Constellation. So again, it's very tough sledding in the alcohol business right now. In general, I do think that it's cyclical in nature.

We do expect the pendulum to swing back at some point, and when it does, Constellation has really put itself in a position to win big over some of the more domestic beer manufacturers. And we see it in our data quarter after quarter, that people are going to these Mexican beers. They really like the flavor profile, and they really like the price point.

SPEAKER_1 (3:45)

I do wonder if we're going to hear more about just penetration on non-alcoholic or zero-proof beverages because of the increase in consumption that way. Is there anything in your data, Andy, that shows this is an effect of, say, GLP ones or America kind of on this trend of being healthier?

Andy Swan (4:08)

Yeah, I think that's definitely a factor in the same way that it affects some of the snack companies, some of the soft drink companies, fast food, etc. I think that that's definitely a factor. But I do have to wonder personally, if once these GLPs have had their impact and people look better and feel better, if there be a return to some social environments, to some of the fun that everybody has had for hundreds of years when it comes to drinking, is this a real trend that's going to sustain itself, or is this a reaction to, like you mentioned, kind of the post-COVID release hangover, as well as this GLP-1 driven flight to health?

That is yet to be seen, but one thing we can say for sure is that Constellation's portfolio looks to be in good position to pick up the pieces as they start to flow in.