B (5:32)

Some numbers, thank you for asking. I and the other people are doing dry January. Yes. But let's tap into earnings to get the other pun in there.

A (5:41)

I love it.

B (5:41)

So Constellation brands is ticker STZ, STARZ, Constellation Corona. These are all associated market cap $25 billion. All the numbers were down, but it was a case of, you know, not as bad as it could have been. Earnings per share of $2.88 was down 15% from a year ago, but beat expectations. Net sales of 2.2 billion, down 10% year over year, but also beating expectations. Now beer accounts for the majority of the company's business. Net sales $2 billion was only down 1% year over year down, but showing signs of steadying. It was down 7% the previous quarter. And so to give more comparison, wine sales were down 50% year over year. Spirits down 32% year over year.

A (6:26)

Now some of those bigger drops, particularly in wine and spirits, was because Constellation is going through a bit of a strategic repositioning. It's been selling some brands that are baked into those declines. We'll come back to those divestitures shortly. And overall though, organic net sales, which we focus on because it's really what's the core business that's going to continue moving forward, Shrunk sort of single digit percent. But the key to this, just listening to you John, was the fact we had these big declines but they beat expectations. Right? And the key thing here is the market had really low expectations going into this earnings report from Constellation. Given a couple of things. Number one, tariff costs. Something like 85% of products here or volumes here are imported from Mexico. Aluminum, obviously for beer cans is a big one that has seen a hit from the tariff policies. Marketing costs have been high for the category and there have been these ongoing questions around volumes for some very interesting reasons we'll go into now. The company had lowered guidance in early September. They'd really sort of flushed some bad news and got an analyst to expect that things weren't going to be so great. And in part because it is trying to figure out what its identity is going forward. It's such a powerful name in beer, but it's been busy reconfiguring its non beer business. So last year the company sold some of its mainstream wine labels to focus on the higher end brands with better margins, meaning screaming bottles that are much more expensive. Over $15 per bottle is the price point that they're wanting to hone in on. So they kept the Robert Mondavi winery wine brand. They kept The Prisoner Wine Company brand. And they kept Kim Crawford. They kicked out of the portfolio though Woodbridge and Cook. So that's what's been going on on the wine site at the house.

B (8:14)

Right. And my mom has had Woodbridge in her fridge over the years and so that caught my eye. Another one was their Svetka Vodka brand.

A (8:22)

Such a good name. Svetka, yes.

B (8:24)

And it made a big impression years ago because it had this robot woman that sold the product was the mascot or something.

A (8:31)

Oh really?

B (8:31)

And I saw over the summer just the headline, Svetka is bringing back the robot. And I didn't know until today that oh, it was because the company has been. That brand has been sold. And so the new owner is bringing about Sveta.

A (8:42)

Oh, they're going retro. I love it. There is this whole sort of nostalgia push at the moment. So that's sort of in keeping with that whole thread. I love it. Again, Spedka, great name, sort of rolls off the tongue. Well, while it does rem a small part of the business or something else that is going on at Constellation, which is the expansion into again, what is currently small, these sort of fast growing newer beverage categories. And that includes alcohol free products including the sparkling beverage brand Toast. Is that how you say it? Toast T o with an out st. Exactly. And hi yo which is a tonic drink infused with botanicals. And there's just a lot of interesting context here around one. What is underlying demand and what is the underlying demand trend for alcoholic beverages? And to the proliferation of nonalcoholic that we've seen as well, which I've actually seen on the private side too, a proliferation of brands trying to figure out how to crack the non alcoholic market.

B (9:40)

And Constellation Brands leaned into that today with a big announcement. The first non alcoholic version of their bestseller Modelo. Yeah, I read that headline. I thought I can have an na Modelo, but not really. It's a non alcoholic version of the Modela Shalata Limon Isal and from the press release, Limon Isal has been a fan favorite in our Ready to Drink Shalada lineup for six years. And so it was an obvious pick to be the first non alcoholic release. So they're leaning into that non alcohol.

A (10:08)

Well, it's interesting because there's one brand that I actually looked at investing in about five years ago and that's Athletic Brewing Company familiar with this and at the time it really was standing out on its own. The esthetics, terrific. It's got really well designed packaging, it's got a great logo and it's got a whole sort sort of sweet. So if you walk into a supermarket and you see the portfolio of athletic brewings there, it looks good on the shelf. It's actually very iconic.

B (10:33)

It looks like a craft brewery.

A (10:34)

It. It is absolutely a craft brewery. It looks like it, it's positioned like it, it tastes like it. And at the time it was really on its own and you've seen others sort of push into the space and you almost get the sense or I almost get the sense. Now folks like Constellation was sort of watching to see, sort of let the indie brands experiment and then these guys were going to pick their spots, those at scale to try and figure out how to sort of piggyback over off the trend. Been astonishing actually over the last couple of years. The thing that is curious and which I've been thinking about a lot is just how big though is the headwind of an overall potential decline in demand for alcoholic beverages. Not just in beer but also in wines and in other sort of cocktail and spirits that goes into cocktail. It's interesting. I went to Pew Research. Do you ever look at Pew Research? Pew Research?

B (11:24)

Oh sure, yeah.

A (11:26)

I like to go there and sort of peruse the website sometimes because they do really interesting thought pieces. I've looked on there for example to see what is the status of religion amongst different demographics and then what are consumer tastes around certain kinds of products. And there's been this narrative, John, that younger demographics, younger people are staying away from alcohol, that they're socializing around alcohol much less. And it's got the wine industry sort of nervous that perhaps there isn't going to be sort of take up not only of, of mass wine but also sort of collectors go out and spend huge amounts of money on wine. And so I took a look at pure research. They put out this report in March 2025 to really see some definitive evidence that younger people are drinking less alcohol than their older counterparts. And it is actually is not definitive data. It doesn't look quite as clear cut as some of the coverage of these alcoholic beverage companies would suggest.

B (12:19)

That's right. All summer I saw the headlines about this report all over the news. Young people don't drink anymore. And. And I sort of looked around Manhattan and wondered if that's true.

A (12:29)

Are saying it right. The corporates are actually reinforcing that. Well, let's talk a bit more about some of the alternatives. So there was one executive order that came out recently from the White House which we saw send alcoholic beverage stocks tanking and it sent another sector stocks soaring, and that is the cannabis trade. We've seen the executive order come out recently to recategorize cannabis to basically make it a more sort of innocuous schedule when it comes to the categorization of drugs. And as a result, we saw brands like Tilray Brands and their share share prices react very favorably. That company, by the way, billion dollar market cap reporting earnings this evening. So we're going to keep an eye on how that one goes.

B (13:11)

And there's one other thing in the demographics that really hit Constellation Brands. 50% of their customer base is Hispanic. And so today on the earnings call, a an analyst from TD Cohen asked, your Hispanic consumer really started feeling the pressure in February of last year. You kind of see it in the data. Once we lap that initial shock of restrictions on immigration policy, is it possible that it just gets a little bit less bad? And The President and CEO William Newlands said, well, we hope. And with zip codes that have greater than 20% Hispanic representation, it still seems very challenging. He went on to say, you see a lot of volatility state by state, depending on what's going on with immigration policy in particular markets.

A (13:53)

And that's sort of getting to the idea that there are maybe fewer gatherings of friends and family of certain demographic groups, the Hispanic population in particular, in public spaces. While there is a lot of uncertainty around immigration, immigration policy, that's a really specific example of how immigration is tied into the performance of some of these these companies. What's fascinating to me, John, is we don't see many CEOs of public companies really want to talk about that particular topic. And it reminds me actually, for our sister podcast, After Earnings, I spoke to the chief financial officer of AT&T. Right. And that's actually another company, perhaps much less obvious, that has spent a lot of time thinking about what's the impact of immigration policy on their prepay prepaid mobile plans in that case. So, you know, worth looking out for is looking for data points here. Well, if you put this all together, like we said at the top, expectations are very low coming into this earnings report for Constellation. But it's really interesting if you actually take a step back and see what the total analyst population is saying about this one. They're not abandoning this stock, right? Ticker STZ is not being abandoned, despite the fact we've got down organic sales down because of divestitures, uncertainty around volume growth, ongoing overhang of tariffs. Yet nearly 60% of analysts have a buy rating for Constellation right now. And when I dug into Some of these reports I sort of nerded out a lot of the coverage says, hang on in there if you're in. They're not saying, but they're not saying, you know, go out and buy aggressively. They're seeing it saying either hold or, you know, maybe buy, depending where the pricing is. Because they do have some confidence that there is an ability for this management team to restructure, to figure out which brands to keep or sell successfully and also to look at cost control.

B (15:42)

And last year the management did announce organizational structure changes and review. They're looking to save 200 million annually by fiscal 2028. And I thought this was interesting because we've been talking about cultural trends and politics. The CEO said on the earnings call, by focusing on factors within our control, we are confident we're positioning the company in the long term.

A (16:03)

I do want to just hone in on that. It almost sounds like a throwaway comment, right? It sounds like a platitude in many way, ways. But when I'm thinking about looking at these companies and the stories that sit inside them, we're in a market right now where everyone's talking about tech all the time. And you and I have talked about this sort of AI fatigue has kicked in a bit. Tech fatigue is perhaps kicking in and there's been a question around where can investors find value? Where can they park their money outside the sort of mag 7? Where can they go find opportunity? And one of the things that investors tend to look at at moments like this is which are the management teams that can execute, you know, where they know what it is they want to go achieve. They have a time frame for doing it. They've got the right talent to go and achieve it. And this is the kind of comment by focusing on factors within our control that quite frankly, analysts love, that to them screams execution, it screams focus. And it's the kind of sound bite that despite the, you know, poor headline, numbers tends to get a positive reaction. So I, I thought that was fascinating. Just one final thing to, to highlight here, Constellation a couple of things actually. First of all, on the numbers, Constellation is nevertheless trying to use its balance sheet to try and shore up appetite for this repurchased over $820 million worth of shares year to date. So getting cash back to shareholders and did declare a quarterly cash dividend of just over a dollar per share. So it's really trying to position itself as having some kind of stability. That's the message it's sending out and.

B (17:27)

Something fun outside of the numbers to look forward to the World Cup. The global soccer tournament is coming to North America this summer. Football.

A (17:35)

Yes, it's a global football tournament.

B (17:37)

I defer to you on this one. And there was a great line from the earnings call this morning that sums up Constellations excitement for the event. Quote, sporting elements tend to be big beer moments. It's also a sport that over indexes in the Hispanic community. All these things therefore over index into our business.

A (17:55)

I love that. The other big thing happening this year, it's America's 250th anniversary. So we've got to bear that in mind, actually, as we go through 2026 and find some moments to acknowledge that.

B (18:04)

Of a Boston lager there.

A (18:06)

We well, shares of Constellation in response to all of this popped up nearly 8% this morning, settled back down up about 4% overall, still down 33% over the past 12 months. So as I said, Wall street not abandoning this one quite yet. Well, let's take a quick break. When we come back, what does today's move in Costco's share price tell us about December's holiday shopping season? And now a word from our sponsor, Vanguard Financial Advisors. Listen up. Capturing value in fixed income is not easy. Bond markets are massive, murky. And let's be real, lots of firms throw a couple FL flashy funds your way and call it a day. But not Vanguard.

B (18:41)

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A (18:58)

So if you're looking to give your clients consistent results year in and year out, go see the record for yourself@vanguard.com audio. That's vanguard.com audio. All investing is subject to risk. Vanguard Marketing Corporation Distributor There it is, the closing bell. It's 4pm on the east Coast. The market's wrapping up for the day and we don't have a ticker tape. We'll throw it over to our human.

B (19:20)

Ticker app producer, John The S&P 500 finished flat. The Nasdaq was down nearly half a percent and the Dow was up half a percent, thanks in part to a surge in defense stocks and some market headlines.

A (19:31)

Yeah, let's just talk about that surge in defense stocks. We saw yesterday how President Trump's post on True Search Social saying that he was sort of disappointed in the level of compensation of defense stock executives and he was saying he had concerns about the levels and the quality of production and maintenance sent defense stocks actually in the opposite direction, which was down today. An announcement that the White House is looking at, you know, $500 billion of spend sending defense stocks in the opposite direction. So it's a noisy market around that. But we are going to keep watching defense stocks because there's a couple of things going on here. First of all, there is of course policy. There is military policy. The second pie to is how tech is being used to infuse a lot of these defense hardware companies. A trend that isn't going away. So we're going to keep on watching that one. Well, let's talk about shares in Costco. They were up over 5% today. Costco is one of John's favorite stores. I'm going to let you talk about this one.

B (20:26)

Well, it was up over 5% after the retailer posted stronger than expected sales for December. I was one of those customers. Net sales last month rose 8 1/2% from a year early to nearly $30 billion. Total company same store sales increased 7%.

A (20:42)

And back to Alphabet, let's talk about that. Hitting the market today as the most valuable company. Google, a big part of that. Announcing today that it's adding more Gemini features to Gmail like AI generated summaries of email threads and a new feature called Quote suggested Replies which compose one click responses to emails. I got to tell you John, I've already seen that in Microsoft Outlook, right. So this doesn't seem to be quite as much of a seismic shift. I do think though the things like the summaries pretty appealing. But I think the key point here is it's a very specific, tangible example of how AI can be used at a moment when there have been concerns that Google's been exposed with the threat to its search model from the likes of OpenAI.

B (21:29)

And also Gmail has over 3 billion users. And so if they're going to adopt AI into that, it's going to be seen by a lot of people right away.

A (21:37)

It's also going to generate a ton of data to see what the impact of that is going to be to the typical Gmail user. But the other thing I would just say on this folks is Google is more than search is what this proves. It goes beyond search to email. And also Alphabet is more than just Google. Don't forget Alphabet also owns YouTube, it owns Waymo, it's got a bunch of stuff going on in the cloud. There's so much going on with that company. It's diversified something that looks like is a virtue that's being rewarded in terms of the share price performance. And as folks are looking to see where AI is truly delivering tangible change changes to product right now Alphabet was the top performing Mag7 big tech stock in 2025 incidentally, notching a 65 gain. So the fact it's continuing to move showing it is pushing the envelope on innovation. Well, just as a final thought, we want to tee up tomorrow's show for two reasons. Reason number one, we are going to talk to Jamie Siminoff, who's the inventor of the Ring Doorbell, a fun conversation about what it was like to be a founder. He went on Shark Tank. We can talk about what the outcome of that was. And he's now got a very interesting seat at Amazon focusing on the home and focusing on hardware in the home. So a really exciting conversation we're going to bring to you. It is Also tomorrow the 100th episode of our show, so we're excited for it. That's it for today's Brew Markets Daily.

B (23:00)

Brew Markets Daily is hosted by Anne Barry and produced by John Crateau, Tarkab Delatif and Emily Milliron. Our technical director is Lonnie Fiskus, Brittany Dottocco is our audio engineer and the president of Morning Brew Inc. Is Devin.

A (23:10)

Em up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.