Constellation Brands, Inc. STZ has encountered a notable resistance level, prompting caution among investors from a technical standpoint. STZ is trading below the 50 and 200-day simple moving averages (SMA) for quite some time now, which suggests a bearish trend.

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Closing at $238.06 yesterday, STZ remains below its 50-day and 200-day SMA of $250.79 and $244.14, respectively, indicating a possible sustained downward trend.

STZ has shown a lackluster performance, with its shares declining 5% in six months compared with the Zacks Beverages - Alcohol industry, which has seen a decline of 11.2%. STZ’s wine and spirits segment has struggled with persistent headwinds related to shifting consumer preferences, competitive pressures and operational inefficiencies, weighing on overall performance.

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Factors Behind Constellation Brands' Stock Decline

Constellation Brands continues to grapple with significant challenges in its wine and spirits segment, which reported a 12% decline in the most recent quarter, widening from the 7% drop in the prior period. The decline reflects a steep 9.8% reduction in shipment volumes and a 17.6% fall in depletions, underscoring persistent softness in consumer demand. The soft volumes stemmed from challenging market conditions, particularly in the U.S. wholesale channel for most price segments in the wine category.

Shifting consumer preferences and competitive pressures have compounded these issues, making it increasingly difficult for Constellation Brands to regain traction in this segment. The company highlighted that consumer demand remains weak due to macroeconomic headwinds. Adding to these challenges, the company has faced rising costs in the second quarter of fiscal 2025, driven by inflation-related increases in packaging and raw material expenses, as well as higher depreciation and operating costs from brewery expansions.

Constellation Brands revised its fiscal 2025 outlook, reflecting mixed performance expectations across its segments. The company forecasts enterprise net sales growth of 4-6%, driven by a robust 6-8% increase in the beer segment, while the wine and spirits segment is expected to see a 4-6% decline. Despite these challenges, comparable operating income is projected to rise 8-9%, although reported operating income is expected to decline sharply by 62-63%.

Do STZ’s Strategic Initiatives Hold Potential?

Despite challenges, Constellation Brands is strategically positioned, thanks to its strength in the beer business. This was evident from the 6% year-over-year increase in the fiscal second quarter’s net sales for the beer business. Depletion volumes were aided by robust demand for most of its brand portfolio, led by strength in the Modelo Especial, Pacifico and Modelo Chelada brands.

Constellation Brands' premiumization strategy is proving successful, as demonstrated by the accelerated growth of its Power Brands. The wine and spirits business has been transitioning its portfolio toward higher-end brands that align better with consumer-led premiumization trends. Key growth drivers included the company's high-end Power Brands, such as The Prisoner Brand Family, Kim Crawford and Meiomi.

The beer segment also experienced gains from premiumization, driven by growth in traditional beer and flavored categories, including seltzers, flavored beer, RTD spirits and flavored malt beverages. The company is investing in its Power Brands through innovation and capitalizing on priority consumer trends with successful product introductions.

Constellation Brands is advancing its plans to expand brewing capacity in Mexico, aiming to support the growing demand for its high-end Mexican beer portfolio and the emerging Alternative Beverage Alcohol segment, including hard seltzers. At the end of fiscal 2024, the company had approximately 48 million hectoliters of production capacity across its facilities in Mexico, highlighting its strong operational base in the region.

From fiscal 2025 to fiscal 2028, management anticipates nearly $3 billion of capital expenditures for the development of modular additions at the existing facilities in Mexico and the third brewery site at Veracruz. These investments reflect Constellation Brands'  commitment to scaling production to meet anticipated market growth while positioning itself competitively in the premium beverage alcohol space.

Final Words on Grocery Outlet

Quite apparent, shares of Constellation Brands have struggled on the bourses of late, underperforming the industry. The combination of technical weakness and fundamental pressures suggests a cautious approach. For current investors, holding onto STZ stock appears prudent. The company currently carries a Zacks Rank #3 (Hold).

Don’t Miss These Solid Bets

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Ingredion INGR, Freshpet, Inc. FRPT and Vita Coco Company COCO.

Ingredion is a solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. It currently sports a Zacks Rank #1 (Strong Buy). INGR has a trailing four-quarter earnings surprise of 9.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate Ingredion’s current financial-year EPS indicates growth of 12.5% from the year-ago reported numbers.

Freshpet, together with its subsidiaries, manufactures, distributes and markets natural fresh meals and treats for dogs and cats, currently carrying a Zacks Rank of 2 (Buy). FRPT delivered an earnings surprise of 144.5% in the last reported quarter.

The Zacks Consensus Estimate for Freshpet’s current-fiscal year’s sales and earnings implies growth of 27.3% and 224.3%, respectively, from the year-ago reported number.

Vita Coco develops, markets and distributes coconut water products under the Vita Coco brand name in the United States, Canada, Europe, the Middle East, Africa and the Asia Pacific. The company currently has a Zacks Rank of 2. COCO has a trailing four-quarter earnings surprise of 17.6%, on average.

The Zacks Consensus Estimate for COCO’s current financial-year sales and earnings suggests growth of 3.5% and 29.7%, respectively, from the year-ago reported figures.

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