Morning Note: Market News and an update from beer and spirits company Constellation Brands.

Market News

Fed chair Jay Powell signalled openness to a July US interest rate reduction, although the Fed will wait for more data before cutting. Powell also said the central bank would have lowered rates more quickly if not for President Trump’s tariffs. The 10-year Treasury yield rose slightly to 4.26% after falling six of past seven sessions. Gold rallied to $3,335 an ounce, supported by ongoing weakness in the US dollar amid fiscal concerns and trade uncertainty. 

The US Senate passed President Trump’s sweeping tax-cut and spending bill, although it is running into Republican resistance as it heads to the House.

Donald Trump stuck with his 9 July deadline for higher tariffs to resume and deepened his criticism of Japan, saying “I’m not sure we’re going to make a deal.” Japan said it’s engaging in talks in good faith. The President said the US could reach a trade deal with India.

US equities fell last night – S&P 500 (-0.1%); Nasdaq (-0.8%) – with much of the weakness concentrated in the Mag 7 – Tesla, Meta, and Nvidia were all notable decliners. Goldman, Citi, and BofA are among US banks boosting their dividends after clearing the Fed’s stress tests. JPMorgan and Morgan Stanley greenlit buybacks of $50bn and $20bn respectively. In Asia this morning, markets were mixed: Nikkei 225 (-0.6%); Hang Seng (+0.8%); Shanghai Composite (-0.2%).

The FTSE 100 is currently 0.3% higher at 8,817, while Sterling trades at $1.3722 and €1.1649. On the corporate front, Santander has agreed to buy Sabadell’s UK unit TSB for £2.7bn, while Sky reports CD&R is to be among the bidders for BP’s lubricant unit Castrol. According to the Times, AstraZeneca’s CEO is considering moving the pharma company’s market listing to the US.

Source: Bloomberg

Company News

Constellation Brands has released results for the first quarter of its financial year ending 28 February 2026 that were slightly below market expectations. Although the business continues to experience demand headwinds, the company reiterated its growth expectations for the full year. The US-listed shares were little changed following the update.

Constellation Brands is a leading international producer and marketer of beer, wine, and spirits, with a portfolio of higher-end brands including Corona, Modelo, and Robert Mondavi. Part of the group’s strategy is to supplement organic growth with bolt-on acquisitions, and to focus on premium, margin accretive, growth opportunities.

In Beer, the company is targeting 2% to 4% net sales growth and best-in-class 39% to 40% operating margins in FY2027 and FY2028, supported by continued distribution gains, disciplined innovation, and marketing investments. Wine and Spirits is expected to deliver up to 3% net sales growth and 22% to 24% operating margins in FY2027 and FY2028.

However, the company is currently facing softer consumer demand largely driven by what management believes to be non-structural socioeconomic factors. Tariffs on beer imports, along with the inclusion of beer cans under aluminium tariffs, have impacted the business, while beer consumption has experienced a significant slowdown, particularly among its Hispanic consumers, following President Trump’s immigration crackdown.

During the three months to 31 May 2025, sales fell by 6% to $2.52bn, a touch below the market expectation of $2.55. Comparable EPS declined by 10% to $3.22, again lagging the market expectation of $3.31.

By division, the beer business grew net sales by 2% to $2,273m, held back by a 3.3% decline in shipment volumes which reflected socioeconomic headwinds affecting consumer demand. Depletion fell by 2.6%, largely driven by a 4% decline in Modelo Especial and 7% at Corona Extra. On a positive note, the beer business continued to outperform the market – in measured sales channels, Constellation outpaced the total beverage alcohol category by over two percentage points in year-over-year dollar sales.

The beer operating margin fell by 150 basis points to 39.1%, primarily due to increased COGS (inclusive of aluminium tariffs), marketing investments, and other SG&A, as well as lower fixed cost absorption benefits.

In Wine & Spirits, sales fell 21% in organic terms to $280m, driven by a 13.3% decrease in shipment volumes, mostly driven by ongoing weaker consumer demand and continued retailer inventory destocking across most price segments in the US wholesale market.

The operating margin fell by 15.3% to -2.1% as marketing and other SG&A efficiencies were more than offset by lower contractual distributor payments and other adverse variances arising from changes in volume-related contractual obligations.

In June, the company completed the previously announced divestiture of the primarily mainstream wine brands and associated inventory, facilities, and vineyards. During the latest quarter, the remaining portfolio delivered US depletion growth of 2%.

The overall business is cash generative, with free cash flow up 41% to $444m during the quarter, driven by timing of brewery capacity investments. Net debt gearing remains around the group’s target of 3.0x. The group returned $381m to shareholders in share repurchases and increased its quarterly dividend by 1% to $1.02.

The company is expanding its beer business in Mexico and expects to spend $3.0bn between FY2025 and FY2028 to support the future growth of the core, high-end Mexican beer portfolio with modular additions at existing facilities and a third brewery site at Veracruz. The company currently anticipates its next modular addition to come online in FY2026 and initial production at the Veracruz site to be in late FY2026 or early FY2027.

The company has reiterated its growth forecast for the year to end February 2026. Organic net sales is expected to be between a decline of 2% and growth of 1%. Beer net sales growth is expected to be 0%-3%, with operating income growth of 0%-2%. Wine & spirits is expected to fall by 17%-20%, with operating income down 97%-100%. The guidance for comparable EPS has also been reiterated at $12.60-$12.90 (down from $13.78 in FY2025), with a target for free cash flow of $1.5bn-$1.6bn.

Source: Bloomberg