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May 29, 2024

Constellation Brands Posts Mixed Q3 Results, Cuts Full-Year Outlook

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Jan 5, 2024

Constellation Brands, the producer of Corona and Modelo beers, reported fiscal third-quarter results on January 5th that beat earnings expectations but fell short on sales. The company also lowered its full-year profit outlook due to softness in its wine and spirits division.

Key Takeaways

  • Earnings per share rose 10% to $3.42, surpassing analyst estimates of $3.36
  • Net sales declined 5% to $2.44 billion, missing expectations of $2.48 billion
  • Beer sales jumped 8.2% with strong momentum from Modelo and Corona brands
  • Wine and spirits net sales tumbled 14%, driving the overall revenue shortfall
  • Full-year EPS guidance lowered to a range of $11.00-$11.20 from $11.45-$11.75 previously

“While our beer business continues to perform very well, we experienced challenges within our wine & spirits business this quarter that led to year-over-year sales declines,” said CEO Bill Newlands. “We are actively working on plans aimed at returning this segment back to growth in the coming year.”

Diving Into the Numbers

Key Figures:

Metric Result Year-Ago Estimate
Earnings Per Share $3.42 $3.12 $3.36
Net Sales $2.44 billion $2.57 billion $2.48 billion
Net Income $470.8 million $381.3 million N/A

Constellation’s beer business showed continued momentum, with depletions (shipments to retailers) jumping 8.2% compared to last year. This growth was powered by the strong performance of Modelo and Corona brands, now accounting for over 70% of the division’s sales.

However, the wine and spirits segment declined significantly with net sales down 14% and operating income falling 26%. The company cited economic softness, inventory reset at retailers, and tough year-ago comparisons.

Given the wine and spirits weakness, Constellation took down its full-year EPS outlook. But it actually raised projections for beer sales growth to a range of 7-9% based on the segment’s recent strength.

Market Reaction & What’s Next

Constellation’s stock rose nearly 4% in early trading as the better-than-expected earnings overshadowed the light revenues. The beer division’s performance was the clear highlight and investors appeared confident it could help offset short-term issues on the wine/spirits side of the business.

The company will be looking to reaccelerate growth in its wine & spirits brands, through pricing actions, increased marketing investment, and portfolio optimization.

Meanwhile, Constellation should continue riding stellar consumer demand trends for Mexican imports like Corona and Modelo. Beer depletions are expected to grow at a mid-single digit pace for the full year.

If the company can get the wine/spirits segment back on track while sustaining momentum in beer, it will be well-positioned to deliver balanced growth and profitability moving forward.

Analyst Commentary

Most analysts maintained a bullish view on Constellation Brands after the print:

“While wine/spirits results were unexpectedly weak this quarter, we think Constellation’s powerful beer franchises have plenty of runway for further share gains,” said Bank of America analyst Bryan Spillane. “Plus, we expect management can improve execution over time in the other segments.”

Wells Fargo analyst Bonnie Herzog added: “STZ remains one of our top picks as we remain confident in its total portfolio – we would use recent weakness as a buying opportunity.”

A minority of analysts did express some caution about further multiple expansion after the stock’s big run over the past year. But the consensus believes Constellation’s long-term growth outlook remains bright.

With its strong cash flow generation and brands retaining their consumer appeal, Constellation is likely to drive enhanced shareholder value over the coming years even if some near-term headwinds remain.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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