Buffett's Bet: Should You Follow His Lead on Constellation Brands?

Ladies and gentlemen, let me tell you something: Warren Buffett, the Oracle of Omaha, has made a splash in the alcoholic beverage market. His investment firm, Berkshire Hathaway, recently acquired a substantial $1.24 billion stake in Constellation Brands, the company behind popular brands like Corona and Modelo beer. This move immediately boosted Constellation Brands’ stock price, sending it up by over 4%. But here’s the kicker: Constellation Brands' stock price has fallen over 20% since the start of 2025 and over 30% in full one-year performance. This disparity has led investors to question whether Buffett's optimistic outlook is enough to make Constellation Brands a worthwhile investment.

Let’s break it down. Constellation Brands is a major player in the international alcoholic beverage industry, producing and marketing a wide range of beer, wine, and spirits. Its business is structured into two primary segments: Beer and Wine & Spirits. Each segment caters to different consumer tastes and market dynamics. The Beer segment is the company's dominant force. It thrives on its leadership in the U.S. imported beer market, with iconic Mexican brands like Corona, Modelo, Pacifico, and Victoria. These "high-end" brands are known for their premium positioning and command strong consumer loyalty.

But here’s the thing: Constellation Brands' earnings report for the third quarter of Fiscal Year 2025 presented a complex, mixed picture. While the beer business showed resilience, the wine and spirits segment faced significant challenges. In the third quarter, beer shipments were 102.7 million case equivalents, a 1.6% increase year-over-year, and beer depletions are up 3.2% year-over-year. Total net sales remained flat at $2.5 billion year-over-year, illustrating the balancing act between the segments. The Beer segment delivered a 3% increase in net sales, reaching $2.0 billion, with a 2% rise in operating income to $770 million. This demonstrates the continued strength of brands like Modelo and Corona. However, the Wine & Spirits segment experienced a significant downturn. Net sales dropped significantly by 14% to $431 million, and operating income suffered a 25% decline, landing at $95.2 million. Wine and spirits depletions are down -4.3%. This contrasting performance across segments highlights the core challenge facing the company.



Now, let’s talk about the risks. Constellation Brands faces several potential risks and challenges that could impact its future growth. One significant risk is the impact of tariffs on its business. Constellation Brands has multiple breweries in Mexico and makes the vast majority of its beer there, including its popular Modelo brand. A lofty 25% tariff on imports from the country would undoubtedly weigh heavily on its financials. The longer that tariffs are in place, the more they'll impact Constellation's numbers. This is a short-term risk that could hinder the company's growth and profitability in the near future.

Another long-term risk related to alcohol is the growing concern about the impact of alcohol on cancer, and that any amount can increase a person's overall risk of developing cancer. Earlier this year, a report from the surgeon general also called for warning labels to be added on alcoholic beverages. This could lead to a decline in alcohol use in the years ahead, not unlike what has been happening with tobacco over decades. This long-term health risk may lead to a decline in alcohol use in the years ahead, which could negatively impact Constellation Brands' future growth.

So, should you follow Buffett’s lead and invest in Constellation Brands? The answer is not straightforward. While Buffett’s investment is a vote of confidence, the company’s recent financial performance and the risks it faces are significant. You need to do your own analysis and research before deciding on whether to buy a stock. Berkshire's portfolio is substantial, and Constellation makes up just 0.4% of it. If it's a flop, it won't have much of an impact on Berkshire, which is why you shouldn't consider buying the stock just because Buffett did.