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In a surprising role reversal, Constellation Brands' (STZ) Wine & Spirits segment, which continues to undergo a premiumization transformation, drove the company's upside 4Q25 results as organic net sales increased by 11% yr/yr. During this multi-year reshaping of the brand portfolio, Wine & Spirits has consistently lagged behind the Beer segment, weighing on STZ's overall results. It appears that this focus on premiumization is finally paying some dividends and STZ is moving full steam ahead with this strategy, also announcing that it's divesting more mainstream wine brands to The Wine Group.

• For the first time in at least eight quarters, Wine & Spirits delivered positive organic net sales growth, driven by favorable product mix toward higher-margin premium products, distributor payments, and volume growth in U.S. and international wholesale markets. In recent quarters, unfavorable sales trends for mainstream, and some premium brands, have combined with operational disruptions related to brand restructuring to pressure sales. 
• Compared to premium labels, mainstream wine brands are facing increasing competition from private label brands and discount offerings. Furthermore, premium wines are aligned with an evolving consumer preference for quality over quantity. From a financial standpoint, premium wines also deliver higher margins. For these reasons, STZ is willing to deal with some disruptions and impairment charges in the short-term in Wine & Spirits, betting that a higher-margin premium portfolio will drive stronger profits over the long-term.
• In Q4, Wine & Spirits' operating margin did contract by 380 bps yr/yr to 21.7% as benefits from contractual distributor payments were offset by higher cost of products sold and higher marketing expenses. With the divestiture of more mainstream brands, including Woodbridge, Meiomi, Robert Mondavi Private Selection, Cook's, and SIMI, more margin pressure is likely in the coming quarters. In fact, STZ is expecting operating income to decline by 97-100% in FY26.
• Turning to the Beer segment, depletions declined by 1% after increasing by 3.2% in Q3 and by 2.4% in Q2, while net sales were essentially flat yr/yr at $1.70 bln. Although the Beer business continued to outperform the total U.S. beer category -- STZ's branded added 0.5 points of share in Q4 -- momentum is fading amid mounting macro-related headwinds. In particular, the key Hispanic consumer group is facing strong economic pressures, leading to reduced discretionary spending and value-seeking behavior. Additionally, the beer industry as a whole is contending with changing consumer preferences, with some shifting to spirits, ready-to-drink beverages, and non-alcoholic beverages.
• Looking ahead, STZ is anticipating a challenging year, as illustrated by its downside FY26 EPS guidance of $12.60-$12.90 and enterprise organic net sales growth of (2)% to 1%. Increased tariffs on Mexican imports, which could cut into STZ's earnings by 25-40%, only add to the list of challenges. Beyond FY26, though, STZ is eyeing stronger growth, guiding for net sales growth of 2-4% for FY27-FY28 with EPS growing by mid-single-digits to low-double-digits in FY27.

STZ's pivot toward premium brands in its Wine & Spirits segment contributed to an 11% organic net sales growth in Q4, driven by favorable product mix and distributor payments. Meanwhile, macroeconomic pressures, including inflation and recession fears, coupled with newly imposed tariffs on Mexican beer imports, weighed on the Beer segment's depletions growth. The company's outlook reflects a cautious approach as it expects to navigate restructuring costs while continuing to focus on premiumization in Wine & Spirits.