Constellation Brands heads into earnings with demand headwinds

Constellation Brands Inc (NYSE:STZ) reports fiscal first-quarter results after the close on June 30, and the setup is bumpy.

UBS is modeling EPS of $3.12, below the Street consensus of $3.24, after cutting estimates to reflect weaker beer demand.

The stock has dropped 11.4% in recent months while the broader consumer staples sector gained 3.6%.

The reversal has been sharp. Beer equivalent units were up 2% in early April, but dollar takeaway and EQ units both finished the quarter in negative territory, down 1.3% and 2% respectively. UBS now forecasts beer depletions down 1% for the quarter versus a Street estimate of positive 0.3%.

Earlier in the year, investors had expected a strong start, with World Cup and US anniversary tailwinds seen as potential demand drivers. That optimism has since faded.

UBS expects Constellation to hold its full-year guidance, which calls for EPS of $11.20 to $11.90 and beer sales in a range of -1% to +1%. The bank sees the guidance as achievable and maintains a Buy rating, though it trimmed its price target to $175 from $186.

At roughly 12.5 times forward earnings, UBS sees the risk/reward tilting positive. But analysts warned that what happens with demand trends over the next few weeks will matter more to the stock than the earnings print itself.