When Beer Loses Its Fizz: Constellation Brands Caught in the Crosswinds

Last week, Constellation Brands (NYSE: STZ) discovered that even the most iconic beverage empires can lose their sparkle. The stock slid a sobering 9.8% in just five days, deepening a year-long hangover that’s erased over 40% of its market value. What’s draining the glass at one of America’s most storied drink-makers? The answer is a potent cocktail of macro turbulence, shifting sips, and the bitter taste of tariffs.

Bubbles Bursting: A Toast Turns Tepid

Constellation Brands' signature beers—think Corona and Modelo—once rode unstoppable demand. Not anymore. The company’s Q1 2026 results landed with a thud: net income crashed to $516 million (down from $877 million last year), and net sales tumbled 5.8% to $2.52 billion. The culprit? A sharp drop in beer demand and a double shot of aluminum tariffs, squeezing margins in every can and bottle.

For investors, the bad buzz is hard to ignore. In the past three months, STZ has shed 14.5%, and over six months, it’s down a staggering 20.7%. As of mid-August, short interest spiked to 8.09 million shares—5.2% of the float—reflecting a crowd betting the pain isn’t over.

The Aluminum Tax: When Policy Invades the Party

Tariffs have become the unwelcome guest at Constellation’s table. With the reimposition of U.S. aluminum tariffs, every can of beer carries a heavier price tag. These costs are hard to pass on in a market where consumers are already rethinking their relationship with alcohol. The result? A squeeze on operating margins—despite a resilient gross margin of 51.1% for the trailing twelve months ending Q1 2025, net income margin sank to -4.4%, down from a healthy 24.4% a year earlier.

Shifting Tastes: The Spirits (and Cocktails) Are Willing

The beer chill comes as the spirits world heats up. Tequila, once a niche, has overtaken whiskey and outsold vodka in American bars. Ready-to-drink (RTD) cocktails are surging, with the global market expected to more than double by 2029. Yet, Constellation’s wine and spirits segment is stuck in neutral: net sales for this division declined 9% in 2024, and operating income fell 8%. Even with a pivot to premiumization—and the bold divestiture of mainstream wine brands like Woodbridge and Meiomi—category headwinds persist.

Between a Tariff and a Taste Test: Macro Meets Micro

It’s not just about what’s in the glass. Geopolitical tremors—trade policy shifts, rising protectionism, and the specter of retaliatory tariffs on U.S. whiskey—have sent ripples through global supply chains. Meanwhile, “non-structural socioeconomic factors” (think: changing demographics, evolving party culture, and the rise of non-alcoholic alternatives) are reshaping what, how, and why Americans drink.

Constellation’s attempts to pivot—shedding bulk brands, doubling down on premium, and chasing the RTD and agave booms—have yet to offset these headwinds. Free cash flow to sales stands at a robust 20.5%, but with net debt-to-EBITDA ballooning to 25.1, balance sheet leverage is becoming harder to ignore.

Wall Street’s Cold Shoulder

Bank of America recently downgraded Constellation to 'underperform,' pointing to risks tied to Hispanic consumer sentiment and lackluster beer growth. Citi trimmed its price target to $190. The consensus? Even a portfolio of beloved brands can’t outpour a rising tide of macro risk.

What Remains in the Bottle?

Constellation Brands has weathered storms before, but the current mix of tariff-driven costs, sluggish beer demand, and evolving consumer tastes has shaken investor confidence to its core. Fiscal 2026 projections are muted: comparable EPS is expected at $12.60–$12.90, and organic net sales could swing from a 2% decline to a modest 1% rise.

In a world where tequila is king, RTDs rule the shelves, and tariffs bite into every sip, Constellation Brands faces a simple question: can it reinvent the party—or is this one last round before the lights come up?