FanDuel’s Losing Streak & Beer Bounces Back

John Crotteau (0:05)

Constellation Brands says cheers to beer. We have the latest from earnings.

Emily Milliron (0:09)

And Elon Musk wants to make the biggest chip factory on earth. But who's actually building it?

John Crotteau (0:14)

For Wednesday, October 7th, it's Brew Markets Daily. I'm John Crotteau.

Emily Milliron (0:17)

And I'm Emily Milliron. Let's get moving and grooving.

John Crotteau (0:28)

All right, Emily, it is awesome to have you back in the studio again today for Wednesday.

Emily Milliron (0:32)

Happy to be here.

John Crotteau (0:33)

Absolutely. And in our morning meeting this morning, we actually do meet before we do the show. We were deciding between discussing two stories related to a Constellation company. Story number one, Google signing a 20-year nuclear deal with Constellation Energy to power AI buildout.

Emily Milliron (0:47)

Yeah, Constellation Energy shares rose over 15% yesterday. It's definitely an actionable AI development.

John Crotteau (0:54)

Yeah, we'll be covering it more in the future. Second story, Constellation Brands reported earnings yesterday after the bell.

Emily Milliron (1:01)

And that Constellation is beer, Corona, Modelo, Pacifico.

John Crotteau (1:05)

Yeah, exactly, with a few premium wine brands mixed in there.

Emily Milliron (1:08)

All right, John, so what are we covering today?

John Crotteau (1:10)

All right, well, I already tipped my hand. I pretended to flip a coin, but because it's hump day, we're going to go with the booze story. Because this company leaned into World Cup exposure. I was curious to find out if their investment paid off, and we'll get into more of that in a moment. But first, let's start quickly with some context on Constellation Brands. It has one of my favorite tickers, STZ Stars.

Emily Milliron (1:33)

You can add that to the list. You have a bunch of favorite tickers.

John Crotteau (1:35)

This one is good. Stars, Constellation. And the market cap is about $20 billion. Shares are down nearly 50% in the last two years. So let me just go over quickly all the pressures we've been talking about that have helped define 2025 for the company.

Young people like Avani supposedly are drinking less. We've heard that. Tariffs weighed on aluminum shipments. That means more expensive cans of beer. And half of Constellation's beer buyers are Hispanic. And there was reporting last year that immigration enforcement was weighing on the company's consumers.

Emily Milliron (2:04)

Right. And if we look at the recent quarter, where are we today? They are in a bit of a turnaround. In the most recent report, the company said that net sales were around $2.6 billion, up 6% year over year, and adjusted earnings of $3.74 also rose and beat expectations by 20 cents. 94% of the company's revenue comes from beer, and beer sales were actually up 5%.

John Crotteau (2:29)

So the important part was up. And just as a reminder, wine and spirits, then obviously a much smaller part. Revenue there jumped 17% and swung to a $6 million profit compared to a nearly $20 million loss last year. And that's because they are selling off a lot of their old brands, like Svetka Vodka, that was that robot vodka that some people drank in college, and less premium wine brands like Woodbridge, Miome and Cooks. So that focus seems to be helping the wine and beer.

Emily Milliron (2:57)

Right, it was a solid quarter, but all the headlines this morning were that the stocks were dropping. So John, break it down. What's the disconnect?

John Crotteau (3:05)

Right, so they reported earnings yesterday. It had these numbers, and then this morning, pre-market, the shares were down 5%.

But the numbers for two areas didn't look promising on paper. And we're talking about shipments and depletions. Shipments were up 5.5%. In other words, distributors were stocking their chillers with Corona, for example. But depletions were down 0.6%.

In other words, customers weren't actually ordering or buying that Corona. So the concern this morning was that the gap indicated a lack of consumer demand. Broadly, when you're talking beer, depletions are a good gauge of demand and those were down. But on the earnings call this morning, we got to hear from company leadership. Constellation Brands CEO Nick Fink had an explanation. He assured investors that distributors simply let inventory get too low last year. So it was time for a refill. CFO Garth Hankinson said that even without the refill, they still would have beaten expectations.

Emily Milliron (3:59)

Yeah. And after the call, we actually saw the share price pop into a positive space. Also helped by an update on the share buyback, $530 million done this year and $2.5 billion left on the authorization. Also, John, since the markets seem obsessed with solving young people's drinking habits, which truly they seem to be, we have heard that for the next generation, it's all about RTD, ready to drink.