Constellation Brands Q2 FY2027 Earnings: Beer Makes 94% of Sales and All the Profit

Constellation Brands is a beer company that still files as a beer, wine and spirits company. In the second quarter of fiscal 2027, net sales rose 6.1% to $2,633.0 million and diluted EPS rose 25% to $3.32. The Beer business sold $2,473.6 million, 94% of the total, and earned $964.2 million of segment operating income at a 39.0% margin. Wine and Spirits sold $159.4 million and earned $6.1 million. Reported operating income still fell 7.9% to $805.0 million, because selling, general and administrative expenses rose 23% and a $49.8 million write-down landed on another business the company plans to sell.

The Headline Numbers​

The quarter covers the three months ended August 31, 2026. The fiscal year ends on the last day of February, so fiscal 2027 ends February 28, 2027. Every figure comes from the earnings release filed on October 6, 2026 and the Form 10-Q filed the next day.

Operating income fell 8% and EPS rose 25%. The gap is the tax line. Income before income taxes fell 6.8%, from $782.9 million to $729.4 million. The provision for income taxes fell by half, from $296.8 million to $147.1 million, and the effective rate went from 37.9% to 20.2%. Last year's quarter carried $192.1 million of valuation allowance adjustments, which the release lists among its comparable adjustments. Remove those items from both years and comparable net income is flat: $637.3 million against $637.8 million.

Comparable EPS still rose 3%, and that came from the share count. Diluted shares fell 3.0%, from 175.9 million to 170.6 million. So the reported 25% is a tax comparison, and the comparable 3% is a buyback. The business itself earned the same money as a year ago.

Revenue Deep Dive​

Beer. Shipments rose 5.5% to 123.9 million cases. Depletions, which measure what distributors sold on to retailers, fell 0.6%. The 10-Q breaks the $128.6 million increase in Beer net sales into three pieces: $130.2 million from shipment volume, $12.8 million from pricing, and a $14.4 million drag from product mix. It also says why volume rose: "as distributors sought to rebuild inventory days-on-hand". The growth came from filling the channel, and consumer takeaway was slightly down.

The brand detail is mixed. Modelo Especial depletions fell about 2% and Corona Extra fell about 5%. Pacifico grew about 19%, Victoria about 15% and the Modelo Chelada brands about 5%. The release says the Beer business was the largest dollar and volume share gainer in Circana's U.S. tracked channels, and that it outperformed the total beer category by 4 percentage points. Both statements can be true together when the category itself is declining.

On demand, the CEO's quote in the release says "our portfolio of iconic brands continued to resonate with consumers" and that the company is "beginning to see early returns through accelerating dollar and volume share gains". The 10-Q is more cautious. It describes consumers showing "subdued spend, depressed sentiment, value-seeking behaviors". Neither document says demand exceeds supply, and neither describes supply as tight. The ledger agrees with the cautious version. Constellation's own inventories fell from $1,433.9 million in February to $1,378.6 million, while it shipped more than the market drank.

Wine and Spirits. Net sales rose 17.2% to $159.4 million on a 15.4% increase in shipments, and depletions rose 10.2%. Kim Crawford grew about 11% and Mi CAMPO about 51%. This is a much smaller business than it was. A year ago it had just closed the 2025 Wine Divestitures, which sold the mainstream wine brands on June 2, 2025. The six-month comparison still shows the cut: Wine and Spirits net sales were $308.6 million against $416.5 million, down 26%.

The 10-Q adds a warning on the wine growth. Shipment volume "benefited from strategic pricing actions taken on select brands in our U.S. wholesale channel", and the company expects wine shipments to decline in the second half as it works through "mutually agreed-upon finished goods inventory reductions with key distributors".

A new product line. After the quarter closed, the company bought SpikedAde, a spirit-based ready-to-drink brand. It paid $75 million at close, with contingent consideration of up to $278 million over five years. The release says the deal "strengthens our position in the fast-growing RTD category". The results will be reported in the Beer segment, not in Wine and Spirits.

The Margin Story​

Gross margin was steady at 52.9%. Inside the Beer segment it improved, from 52.9% to 54.1%. The 10-Q gives the mechanics. Lower cost of product sold added $33.9 million to Beer gross profit, including $24.1 million of lower tariffs, "largely on aluminum imports under Section 232", and $23.3 million of favorable fixed cost absorption from higher production. Materials and warehousing costs rose by about $20 million against that.

Pricing contributed little. The 10-Q calls it a "favorable impact from pricing in select markets", worth $12.8 million on $2.47 billion of Beer sales, or about half a percent. For the six months, the 10-Q credits beer pricing with roughly 30 basis points of gross margin. Price is not what moved this quarter's numbers.

The gross margin gain did not reach operating income. SG&A rose from 17.6% of net sales to 20.4%. The release explains the Beer segment's 160 basis point margin decline in one sentence: "lower tariff expenses and favorable fixed cost absorption were more than offset by increased marketing investment and other SG&A spend." The 10-Q also names "unfavorable short-term incentive accruals", which is compensation. Corporate Operations and Other cost $73.7 million, up from $45.6 million.

So the cost savings were real, and management spent them on marketing. That is a choice, and the depletion line shows why it was made.

The One Big Question: Did Beer Grow, or Did Distributors Restock?​

Shipments rose 5.5% and depletions fell 0.6%. That is a gap of about six points in one quarter. For the six months, shipments rose 3.7% and depletions fell 0.5%.

The company says the gap will close. The 10-Q states: "we expect shipment volume to generally align with depletion volume for Fiscal 2027." If shipments ran ahead in the first half, they have to run behind in the second.

The guidance already says so, if you do the subtraction. Management guides full-year Beer net sales to a range of a 1% decline to 1% growth. Fiscal 2026 Beer net sales were $8,315.2 million, so the range is about $8,232 million to $8,398 million. The first half delivered $4,757.1 million. That leaves $3,475 million to $3,641 million for the second half, against $3,735.7 million in the second half of fiscal 2026. The implied second-half decline is between 2.5% and 7.0%. This is our arithmetic on the company's published figures, not a number the company states.

The margin guidance points the same way. Beer earned 39.0% in the first half and the full-year guide is 37% to 38%. Lower volume in the second half means less fixed cost absorption, which was worth $23.3 million this quarter.

The other full-year numbers were held or updated. Comparable EPS guidance stays at $11.20 to $11.90, against $11.82 in fiscal 2026. Reported EPS guidance was updated to $11.85 to $12.55. Reported is higher than comparable because the largest adjustment is a tax benefit: the release shows $1.10 per share of valuation allowance adjustments, and a reported tax rate of about 12% against a comparable rate of about 20%. Operating cash flow guidance is $2.4 billion to $2.5 billion, capital spending about $800 million, and free cash flow $1.6 billion to $1.7 billion.

One capacity note belongs here. The 10-Q says: "We now expect commercial production at the Veracruz Brewery to commence at the beginning of Fiscal 2028." The company is still adding brewing capacity in Mexico while its two largest brands are selling slightly less.

Tracking a $9B Beer Company in Plain Text​

Double-entry helps with Constellation because its income statement has carried a different large charge almost every year, and each one sits on a different line. In a ledger each charge is its own posting with an amount and a label, and the postings must sum to the filed total. The conventions match every other company in this series: how we model every company. Income postings are credits (negative), expenses are debits (positive), and Equity:Adjustments absorbs net income so the transaction sums to zero. This is the quarter as pushed to the ledger:

; Check: −2633.0 + 1240.0 + 538.2 + 49.8 − 7.8 + 83.4 + 147.1 + 16.5 + 565.8 = 0 ✓
2026-08-31 * "Constellation Brands, Inc." "FY2027Q2 Income Statement"
  Income:Revenue                              -2633.0 MUSD  ; net sales (sales 2816.7 less excise taxes 183.7)
  Expenses:CostOfRevenue                       1240.0 MUSD  ; cost of product sold
  Expenses:SellingGeneralAdministrative         538.2 MUSD  ; selling, general, and administrative expenses
  Expenses:OtherNet                              49.8 MUSD  ; asset impairment and related expenses (Note 5: Nelson's Green Brier assets held for sale)
  Expenses:OtherNet                              -7.8 MUSD  ; income from unconsolidated investments
  Expenses:Interest                              83.4 MUSD  ; interest expense, net
  Expenses:IncomeTax                            147.1 MUSD  ; provision for income taxes
  Expenses:OtherNet                              16.5 MUSD  ; net income attributable to noncontrolling interests
  Equity:Adjustments                            565.8 MUSD  ; net income attributable to CBI offset (RE set by balance assertion)

Revenue is net sales, which is sales of $2,816.7 million less $183.7 million of excise taxes. The $49.8 million posting is this quarter's write-down. Note 5 of the 10-Q says assets held for sale with a carrying value of $54.8 million were adjusted to an estimated fair value of $5.0 million, in connection with a plan to divest the Nelson's Green Brier business. The $16.5 million posting is the share of profit that belongs to noncontrolling interests, so the last line is net income attributable to the parent.

The balance sheet shows the wine book leaving. These lines come from the fiscal 2024, 2025 and 2026 files:

2024-02-29 balance Assets:NonCurrent:Goodwill                      7980.3 MUSD  ; goodwill
2025-02-28 balance Assets:NonCurrent:Goodwill                      5126.8 MUSD  ; goodwill (7980.3 a year earlier; the Wine and Spirits goodwill was written off)
2025-02-28 balance Assets:Current:HeldForSale                       913.5 MUSD  ; assets held for sale (the wine and spirits net assets sold in the 2025 Wine Divestitures)
2026-02-28 balance Assets:Current:HeldForSale                         0.0 MUSD  ; assets held for sale: 0.0 on this balance sheet (913.5 a year earlier; sold in the 2025 Wine Divestitures)

In fiscal 2025 the company wrote the Wine and Spirits goodwill down to zero, a $2,740.7 million charge, and parked $913.5 million of wine assets in a held-for-sale line. A year later that line was empty. The fiscal 2026 10-K says the 2025 Wine Divestitures brought in $845.9 million of cash, which went to repay debt.

One more number tells the capital story. Treasury stock, at cost, was $4,171.9 million in February 2022 and $8,529.8 million in August 2026. Over the same period total stockholders' equity fell from $12,047.8 million to $8,879.4 million. The cash the breweries earned went to shareholders while the write-downs were being booked.

The Multi-Year Arc​

The Beer segment earned $15.2 billion of operating income over these five years. Net income attributable to shareholders over the same five years was $3.2 billion. Three of the five years ended in a net loss. The ledger shows where the difference went, one labeled posting at a time.

The first row is mostly Canopy Growth. In fiscal 2022 it was a $1,644.7 million unrealized loss on Canopy securities measured at fair value. In fiscal 2023 it was a $1,060.3 million impairment of the Canopy equity method investment plus $949.3 million of equity in Canopy's losses. Fiscal 2024 added $321.3 million of equity losses and $136.1 million of equity method impairments. The Canopy common shares were converted into exchangeable shares in April 2024, and the equity-method line has been nil since.

Then the wine charges took over. Fiscal 2025 carried $2,797.7 million of goodwill and trademark impairment and a $478.0 million write-down of assets held for sale, partly offset by a $266.0 million gain on the sale of the SVEDKA brand. Fiscal 2026 added $52.1 million more on the held-for-sale assets and a $31.9 million loss on sale of business, largely from the wine divestitures.

Two rows are not wine or cannabis. The $665.9 million in fiscal 2022 was the canceled Mexicali Brewery. The $57.7 million in fiscal 2026 was aged equipment at the Obregón Brewery. Fiscal 2023 and 2024 are shown as originally filed. The fiscal 2025 10-K later recast small gains and losses on sale of business out of SG&A for those years, and the period files in the ledger say so.

The Verdict: Bull vs. Bear​

Bull Case

• Beer earned a 39.0% segment operating margin on $2,473.6 million of net sales, and segment gross margin rose 1.2 points to 54.1%.
• The Beer business led its category in dollar and volume share gains in tracked channels, and Pacifico and Victoria grew depletions about 19% and 15%.
• Wine and Spirits turned a $19.8 million segment loss into a $6.1 million profit, with depletions up 10.2%.
• Six-month operating cash flow was $1,478.6 million and free cash flow $1,124.5 million. Debt fell from $10,568.5 million in February to $10,315.7 million.
• Diluted shares are down 3.0% in a year, and the company repurchased $530 million of stock through September.

Bear Case

• Beer depletions fell 0.6% while shipments rose 5.5%. The management language about brands that "resonate with consumers" is not supported by the takeaway number for the two largest brands, Modelo Especial and Corona Extra.
• Full-year Beer guidance of a 1% decline to 1% growth implies a second-half net sales decline of 2.5% to 7.0%, by our arithmetic.
• Pricing added $12.8 million, about half a percent of Beer net sales. Nothing in the filing supports a claim of sustained pricing momentum.
• SG&A grew 23.4% on 6.1% sales growth. Comparable net income was flat, and the 3% comparable EPS growth came from a lower share count.
• The write-downs have not stopped. This quarter added $49.8 million on a business held for sale, after $18.3 million last quarter on the New Zealand wine brands.

Our Take

Constellation is now a brewer and importer of Mexican beer with a small premium wine business attached, and the ledger finally reads that way. The Beer segment earns a 39% operating margin, and nothing in this quarter changes that. But this quarter's growth was a distributor restock, the company's own guidance prices in a weaker second half, and reported EPS growth was a tax comparison. We read the quarter as flat earnings on a very good franchise. The number to watch in the third quarter is Beer depletions. If they stay negative while marketing spend stays elevated, the 39% margin is the thing that gives.