Inflation is still fizzing up in the beer industry, according to the maker of well-known beer brands Corona and Modelo.
"It has moderated some, but it's certainly not back to where it was before the inflationary trend started," Constellation Brands CEO Bill Newlands said on Yahoo Finance Live (video above). "Certainly inflation is one of those characteristics that have been a bit stubborn."
Stubborn and not good for the beer giant's bottom line, either.
Constellation Brands (STZ) reported a 15% year-over-year plunge in its beer segment's operating profits for the recently completed quarter. The primary reason: across-the-board inflation in areas like transportation and packaging.
To combat inflation, Constellation Brands is lifting prices by 1% to 2% in its business. It's also diving deeper into the red-hot ready-to-drink cocktail market and non-alcoholic market, segments of the alcohol industry that lend themselves to higher-priced products.
Newlands noted that sales at the start of the current quarter have been solid despite a more reserved consumer and higher prices for its products.
Constellation Brands has joined rival AB-InBev (BUD) in calling out persistent inflation.
The Budweiser maker saw its operating profit margins fall to 24.6% in its most recent quarter from 25.7% last year, as reported in early March.
"Inflation was above what was originally planned [last year]," AB-InBev CEO Michel Doukeris told analysts on a conference call.
Shares of Big Beer reflect the uncertain outlook on margins brought on by inflation and a more cautious consumer.
The stock prices of Boston Beer (SAM), Molson Coors (TAP), and Constellation Brands have all lagged the 6.7% year-to-date gain for the S&P 500, according to Yahoo Finance data. The worst performer of the group is Constellation Brands, which is down about 3.5%.
"We are mindful of potential short-term issues if the U.S. consumer is under pressure, including the possible impact from a recession," JP Morgan beverage analyst Andrea Teixeira wrote in a client note. "First, while the market has been supported by strong consumer spending, there are some increasing concerns on the purchasing power for U.S. consumers, given the broader inflationary backdrop (e.g. energy/fuel, food, etc.) denting disposable income at an unprecedented level on a 15-year perspective."
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations or anything else? Email brian.sozzi@yahoofinance.com
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