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Driven by the acquisition of Crown Imports business last year, Constellation Brands Inc.’s (STZ - Analyst Report) adjusted earnings for the first quarter of fiscal 2015 jumped nearly threefold to $1.07 per share from 38 cents posted in the comparable year-ago quarter. Moreover, quarterly earnings surpassed the Zacks Consensus Estimate of 92 cents per share.

On a reported basis, the company registered earnings of $1.03 per share, against 27 cents in the comparable year-ago quarter.

Net sales in the quarter soared over twofold to $1,526.0 million from $673.4 million in the first quarter of fiscal 2014. Moreover, the company’s top-line was also above the Zacks Consensus Estimate of $1,478.0 million.

The year-over-year increase in top line was primarily attributable to complete consolidation of the Crown Import business as well as strong demand for beer. The company's beer segment revenues increased 14% to $867.7 million from $761.6 million in the comparable year-ago quarter.

However, the company's wine and spirits sales declined 2% year over year to $658.3 million due to unfavorable foreign currency exchange rates and lower shipment volume resulting from destocking of inventory by distributors. On a constant currency basis, the segment’s net sales inched down 1%.

Cost and Margin Performance for Q1

Adjusted gross profit for the quarter surged by a whopping 163% year over year to $678.0 million. Consequently, adjusted gross profit margin expanded 610 basis points (bps) to 44.4% from 38.3% in the prior-year quarter.

Adjusted selling, general and administrative (SG&A) expenses climbed 77.5% to $273.4 million in the quarter. Based on sales, it contracted 500 bps to 17.9% from the comparable prior-year quarter on the back of effective cost management.

Due to consolidation of the newly acquired businesses, Constellation Brands' adjusted operating income jumped nearly fourfold to $404.6 million from $103.6 million in the year-ago quarter. Adjusted operating margin increased to 26.5% from 15.4% in the year-ago comparable quarter primarily driven by higher gross margin and lower SG&A expenses as a percentage of net sales.

During the quarter, the company's interest expense rose nearly 58.0% to $86.4 million, primarily due to increased average borrowings from the acquisition of Crown Imports, partially offset by lower interest rate.

Financial Position

Constellation Brands, which competes with Boston Beer Co. Inc. (SAM - Analyst Report), ended the quarter with cash and cash investments of $378.0 million. During the quarter, Constellation Brands generated $232.3 million of cash from operations and free cash flow of $100.9 million. As of May 31, 2014, the company had $6,345.6 million of long-term debt (excluding current maturities).

Fiscal 2015 Outlook

Following its strong start of the fiscal, the company raised its forecasts for fiscal 2015. Constellation Brands now expects fiscal 2015 adjusted earnings to be in the range of $4.10 – $4.25 per share, up from previous guidance range of $3.95—$4.15 per share and compared with $3.25 earned in fiscal 2014. On a reported basis, earnings per share in fiscal 2015 are now anticipated to be in the range of $3.90 – $4.05 as against $3.75 - $3.95 projected earlier and $9.83 reported in fiscal 2014.

Currently, the Zacks Consensus Estimate for Constellation Brands is pegged at $4.12 per share which we believe could witness an upward revision following the company’s upbeat guidance.

Certain factors were considered before providing the earnings guidance, such as an interest expense expectation in the range of $345—$355 million, an approximate tax rate of 30% and weighted average diluted shares outstanding of approximately 201 million.

Moreover, the company is expected to incur capital expenditures in the band of $575—$625 million, including $450—$500 million slated for the beer business. Additionally, the company hopes to generate free cash flow in the range of $425—$500 million.

At the time of its earnings release for the fourth quarter of fiscal 2014, the company had provided some projections for the beer segment in fiscal 2015. The company anticipates sales growth for the beer segment in the mid-to-high single digit range. Moreover, the company expects adjusted operating income for the beer segment to increase in the 10%—12% range, while on a reported basis, including the anticipated brewery acquisition benefit, operating income is projected to grow in the low-to-mid 20% range.

On the other hand, sales and operating income for the wine and spirits segment in fiscal 2015 is expected to grow in the low-to-mid single digit range.

Constellation Brands currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Constellation Brands is not the only stock which is performing well in the alcoholic beverage industry. Some other better-ranked stocks which are worth considering include Brown-Forman Corporation (BF.B - Analyst Report) and Molson Coors Brewing Company (TAP - Analyst Report) both carrying Zacks Rank #2 (Buy).

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