00:00 Speaker A
Constellation Brands moving to the downside a bit today after topping fourth quarter expectations. Still, the Modelo owner issuing a weaker than expected outlook for fiscal 2026 as it expects to take a hit from tariffs. Joining us now Bill Kirk Roth Capital Partners, senior research analyst. Bill, thanks so much. Talk to me about your reaction and how you’re thinking about the outlook for Constellation.
00:21 Bill Kirk
Sure. So, um, we knew to expect a lot of news because they they put the earnings release the day prior to the call, right? So the earnings release last night, call is going to be be a little bit later this morning, and that’s abnormal to them. So we expected, you know, more news, more things to digest, and we got exactly that. You know, we we got uh the quarter obviously, we got next year’s guidance, we got wine divestitures, and we got a longer term algorithm change. So we we got a lot of new information to go through. Uh obviously the call is still to come, but specifically to the the forward year guidance, a lot of that kind of below what people expected uh is is primarily the wine divestitures. So simply, you know, they are selling wine. 60% of their wine brands are going out the door. People did not have that modeled, obviously. People didn’t know that that was going to happen. So that is a big part of the kind of revision to the forward outlook. There’s some consumer health revision to the forward outlook, and there’s also some tariffs, and I’m sure we’ll touch on it a bit more, but their tariff outlook, or at least their implied tariff outlook is not as draconian as as people feared. It looks like it’s just on the aluminum packaging rather than maybe on the entire entire beer product.
02:11 Speaker A
Yeah. And so we were going to ask about that, and I’m glad you went into it because I mean, this is not a week to drink if you hear the word tariffs. So, with that being the free space on everybody’s bingo card, how are you kind of uh kind of looking through your own modeling to get a sense of what this might look like as a near-term and a potential long-term impact to the operations?
02:46 Bill Kirk
Sure. So, uh there were scenarios out there where Constellation’s beer would be considered aluminum, and the aluminum product tariff would apply to all the beer, not just the aluminum part of the beer, but all the beer. That was a potential scenario. And then there were scenarios in between where just the beer and aluminum cans would get a tariff, and the glass bottles would not get a tariff. And then there’s the scenario which is implied by their guidance where it’s just the packaging material, and that would be the best-case tariff scenario for constellation. Just the aluminum cans, maybe it’s about mid-teens percentage of their cogs would get hit with a tariff. That is something that obviously not ideal, but much better than the entire beer being applied, getting a tariff applied to it. And so that is a manageable amount, right? If it’s 15% of your goods up 25%, that’s a couple points of inflation. Constellation can manage that. The beer industry can manage that. If that is indeed the case, which we’ll get confirmation on the call, then tariffs aren’t as bad as feared for constellation.