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Constellation Brands (STZ) Dips on Q3 Earnings Miss, View Cut
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Constellation Brands, Inc. (STZ - Free Report) has reported third-quarter fiscal 2023 results, wherein the top beat the Zacks Consensus Estimate, while the bottom line lagged the same. However, the company’s fiscal third-quarter earnings and sales beat our estimates. Sales gains were driven by strong consumer demand for its portfolio of premium, high-end products, particularly robust results for the beer segment.
However, earnings were impacted by higher costs due to inflationary pressures and soft performance at the wine & spirits segment. Backed by the soft results, the company trimmed its earnings view for fiscal 2023.
Shares of Constellation Brands declined 3.7% following the dismal results and the trimmed earnings guidance. Shares of the Zacks Rank #3 (Hold) company have dropped 0.6% in the past three months against the industry’s growth of 6.1%.
Image Source: Zacks Investment Research
Comparable earnings of $2.83 per share for the fiscal third quarter declined 9% year over year and missed the Zacks Consensus Estimate of $2.88. However, it surpassed our estimate of $2.72. On a reported basis, the company recorded earnings of $2.52, up 2% from the year-ago quarter. Excluding the impacts of Canopy Growth, it has posted comparable earnings of $3.01 per share, down 12% from the year-ago period.
Net sales rose 5% year over year to $2,436.5 million and surpassed the Zacks Consensus Estimate of $2,393 million and our estimate of $2,379.1 million. Sales benefited from robust growth in the beer business, offset by a decline in the wine and spirits business.
The company’s beer business reported sales growth of 8% to $1,891.9 million, including a 2.7% increase in shipment volumes and 5.7% depletion growth. Sales growth for the segment was driven by robust consumer demand for its iconic brands. Depletion volume benefited from the continued robust performance of Modelo Especial and strong momentum in the Modelo Chelada brands.
Depletion volume increased more than 4% for Modelo Especial and above 40% for Modelo Chelada. Modelo Especial continued to be the No. 1 beer brand in the high-end category, strengthening its leadership position. It was also the largest share gainer in dollar sales in the U.S. beer category in IRI channels. Meanwhile, Modelo Chelada was the No. 1 brand in the U.S. beer market and held more than 60% share of the entire chelada category.
Additionally, depletion for Corona Extra improved more than 1%. The brand retained its position as the third share gainer in the U.S. beer category in IRI channels.
Sales in the wine and spirits segment declined 4% to $544.6 million in the fiscal third quarter. Sales were affected by lower shipments and depletions for the segment. Shipment volume in the wine and spirits business declined 14.8% year over year, whereas depletions dropped 5.6%. Organic sales for the segment declined 1%, including a 12.7% dip in organic shipments. However, depletions for the segment were partly aided by 9% growth in the Aspira portfolio, a 7% rise from The Prisoner brand family and double-digit gains for High West Whiskey, Mi CAMPO Tequila and Casa Noble Tequila.
Constellation Brands Inc Price, Consensus and EPS Surprise
The adjusted gross profit grew 2% year over year to $1,252.1 million. However, the adjusted gross profit margin contracted 150 basis points (bps) to 51.4%.
Constellation Brands' comparable operating income declined 6.6% to $769.7 million, whereas the comparable operating margin contracted 390 bps to 31.6%.
The operating margin in the beer segment contracted 380 bps to 37.5%, driven by gains from sales growth. This was more than offset by higher raw material, packaging and logistics costs due to the persistent inflationary pressures, higher operating costs from brewery expansions, and elevated marketing expense due to the shift in the timing of sports advertisement investment.
The wine and spirits segment’s operating margin contracted 60 bps to 24.8%, owing to a decline in shipment volumes, higher COGS due to elevated transportation costs, and increased compensation and benefits expenses related to DTC investments. This was partly negated by the improved mix and planned decrease in marketing expenses.
Financial Position
As of Nov 30, 2022, Constellation Brands’ cash and cash equivalents were $185 million, with long-term debt (excluding current maturities) of $11,287.1 million and total shareholders’ equity (excluding non-controlling interest) of $8,389.5 million. The company generated an operating cash flow of $2,280.6 million and an adjusted free cash flow of $1,596.8 million as of Nov 30, 2022.
In the quarter, the company eliminated its Class B common shares through a cash payment of $64.64 per share or $1.5 billion in aggregate to its Class B shareholders.
On Jan 4, 2023, the company announced a quarterly dividend of 80 cents per share for Class A stock. The dividend is payable on Feb 22 to its shareholders of record as of Feb 8.
Outlook
Following the third-quarter fiscal 2023 results, Constellation Brands lowered its earnings view for fiscal 2023. The company expects comparable earnings of $11.00-$11.20 (excluding canopy growth impacts) compared with the $11.20-$11.60 stated earlier. It expects earnings of 15-35 cents per share, on a reported basis, compared with 75 cents to $1.15 mentioned earlier.
Notably, the company reported comparable earnings of $10.20 per share and $10.99 (excluding canopy growth impacts) in the prior year. On a reported basis, it posted a loss of 22 cents in the prior year.
Net sales are likely to increase 9-10% for the beer segment, up from the prior stated 8-10%. Operating income is anticipated to increase 4-5%, up from the earlier mentioned 3-5%. The company expects net sales for the wine and spirits business to be flat to down 2%. The operating income for the segment is envisioned to grow 3-5%.
The company predicts interest expenses of $390-$400 million for fiscal 2023, up from the earlier stated $360-$370 million. It anticipates a reported tax rate of 74% and a comparable tax rate of 20% for fiscal 2023.
Constellation Brands forecasts an operating cash flow of $2.6-$2.8 billion for fiscal 2023, whereas the free cash flow is estimated to be $1.5-$1.6 billion. The company plans to incur a capital expenditure of $1.1-$1.2 billion in fiscal 2023, including $1 billion targeted for the Mexican beer operations’ expansion activities.
The company outlined plans for incremental capacity expansion in Mexico to support growth in its high-end Mexican beer portfolio. It anticipates a total capital expenditure of $5-$5.5 billion for the beer business between fiscal 2023 and 2026. The latest expansion will support an addition of up to 30 million hectoliters of modular capacity and includes the construction of a brewery in Southeast Mexico’s Veracruz. It also targets continued expansion and the optimization of the existing Nava and Obregon breweries.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Heineken (HEINY - Free Report) , PepsiCo (PEP - Free Report) and Monster Beverage (MNST - Free Report) .
Heineken, engaged in the brewing and selling of beer and cider, currently sports a Zacks Rank of 1 (Strong Buy). HEINY has an expected long-term earnings growth rate of 15.3% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Heineken’s current financial year’s sales and EPS suggests growth of 8% and 34.9%, respectively, from the year-ago reported figures.
PepsiCo is one of the leading global food and beverage companies. It currently has a Zacks Rank #2 (Buy). The company has an expected EPS growth rate of 7.7% for three to five years.
The Zacks Consensus Estimate for PepsiCo’s 2022 sales and earnings suggests growth of 7.1% and 8%, respectively, from the year-ago period’s reported figures. PEP has a trailing four-quarter earnings surprise of 4.5%, on average.
Monster Beverage is a marketer and distributor of energy drinks and alternative beverages. It currently has a Zacks Rank #2. MNST has a trailing four-quarter negative earnings surprise of 7.5%, on average.
The Zacks Consensus Estimate for Monster Beverage’s 2022 sales suggests growth of 15.2% from the year-ago period's reported figures. MNST has an expected EPS growth rate of 11.4% for three-five years.
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Constellation Brands (STZ) Dips on Q3 Earnings Miss, View Cut
Constellation Brands, Inc. (STZ - Free Report) has reported third-quarter fiscal 2023 results, wherein the top beat the Zacks Consensus Estimate, while the bottom line lagged the same. However, the company’s fiscal third-quarter earnings and sales beat our estimates. Sales gains were driven by strong consumer demand for its portfolio of premium, high-end products, particularly robust results for the beer segment.
However, earnings were impacted by higher costs due to inflationary pressures and soft performance at the wine & spirits segment. Backed by the soft results, the company trimmed its earnings view for fiscal 2023.
Shares of Constellation Brands declined 3.7% following the dismal results and the trimmed earnings guidance. Shares of the Zacks Rank #3 (Hold) company have dropped 0.6% in the past three months against the industry’s growth of 6.1%.
Image Source: Zacks Investment Research
Comparable earnings of $2.83 per share for the fiscal third quarter declined 9% year over year and missed the Zacks Consensus Estimate of $2.88. However, it surpassed our estimate of $2.72. On a reported basis, the company recorded earnings of $2.52, up 2% from the year-ago quarter. Excluding the impacts of Canopy Growth, it has posted comparable earnings of $3.01 per share, down 12% from the year-ago period.
Net sales rose 5% year over year to $2,436.5 million and surpassed the Zacks Consensus Estimate of $2,393 million and our estimate of $2,379.1 million. Sales benefited from robust growth in the beer business, offset by a decline in the wine and spirits business.
The company’s beer business reported sales growth of 8% to $1,891.9 million, including a 2.7% increase in shipment volumes and 5.7% depletion growth. Sales growth for the segment was driven by robust consumer demand for its iconic brands. Depletion volume benefited from the continued robust performance of Modelo Especial and strong momentum in the Modelo Chelada brands.
Depletion volume increased more than 4% for Modelo Especial and above 40% for Modelo Chelada. Modelo Especial continued to be the No. 1 beer brand in the high-end category, strengthening its leadership position. It was also the largest share gainer in dollar sales in the U.S. beer category in IRI channels. Meanwhile, Modelo Chelada was the No. 1 brand in the U.S. beer market and held more than 60% share of the entire chelada category.
Additionally, depletion for Corona Extra improved more than 1%. The brand retained its position as the third share gainer in the U.S. beer category in IRI channels.
Sales in the wine and spirits segment declined 4% to $544.6 million in the fiscal third quarter. Sales were affected by lower shipments and depletions for the segment. Shipment volume in the wine and spirits business declined 14.8% year over year, whereas depletions dropped 5.6%. Organic sales for the segment declined 1%, including a 12.7% dip in organic shipments. However, depletions for the segment were partly aided by 9% growth in the Aspira portfolio, a 7% rise from The Prisoner brand family and double-digit gains for High West Whiskey, Mi CAMPO Tequila and Casa Noble Tequila.
Constellation Brands Inc Price, Consensus and EPS Surprise
Constellation Brands Inc price-consensus-eps-surprise-chart | Constellation Brands Inc Quote
Margins
The adjusted gross profit grew 2% year over year to $1,252.1 million. However, the adjusted gross profit margin contracted 150 basis points (bps) to 51.4%.
Constellation Brands' comparable operating income declined 6.6% to $769.7 million, whereas the comparable operating margin contracted 390 bps to 31.6%.
The operating margin in the beer segment contracted 380 bps to 37.5%, driven by gains from sales growth. This was more than offset by higher raw material, packaging and logistics costs due to the persistent inflationary pressures, higher operating costs from brewery expansions, and elevated marketing expense due to the shift in the timing of sports advertisement investment.
The wine and spirits segment’s operating margin contracted 60 bps to 24.8%, owing to a decline in shipment volumes, higher COGS due to elevated transportation costs, and increased compensation and benefits expenses related to DTC investments. This was partly negated by the improved mix and planned decrease in marketing expenses.
Financial Position
As of Nov 30, 2022, Constellation Brands’ cash and cash equivalents were $185 million, with long-term debt (excluding current maturities) of $11,287.1 million and total shareholders’ equity (excluding non-controlling interest) of $8,389.5 million. The company generated an operating cash flow of $2,280.6 million and an adjusted free cash flow of $1,596.8 million as of Nov 30, 2022.
In the quarter, the company eliminated its Class B common shares through a cash payment of $64.64 per share or $1.5 billion in aggregate to its Class B shareholders.
On Jan 4, 2023, the company announced a quarterly dividend of 80 cents per share for Class A stock. The dividend is payable on Feb 22 to its shareholders of record as of Feb 8.
Outlook
Following the third-quarter fiscal 2023 results, Constellation Brands lowered its earnings view for fiscal 2023. The company expects comparable earnings of $11.00-$11.20 (excluding canopy growth impacts) compared with the $11.20-$11.60 stated earlier. It expects earnings of 15-35 cents per share, on a reported basis, compared with 75 cents to $1.15 mentioned earlier.
Notably, the company reported comparable earnings of $10.20 per share and $10.99 (excluding canopy growth impacts) in the prior year. On a reported basis, it posted a loss of 22 cents in the prior year.
Net sales are likely to increase 9-10% for the beer segment, up from the prior stated 8-10%. Operating income is anticipated to increase 4-5%, up from the earlier mentioned 3-5%. The company expects net sales for the wine and spirits business to be flat to down 2%. The operating income for the segment is envisioned to grow 3-5%.
The company predicts interest expenses of $390-$400 million for fiscal 2023, up from the earlier stated $360-$370 million. It anticipates a reported tax rate of 74% and a comparable tax rate of 20% for fiscal 2023.
Constellation Brands forecasts an operating cash flow of $2.6-$2.8 billion for fiscal 2023, whereas the free cash flow is estimated to be $1.5-$1.6 billion. The company plans to incur a capital expenditure of $1.1-$1.2 billion in fiscal 2023, including $1 billion targeted for the Mexican beer operations’ expansion activities.
The company outlined plans for incremental capacity expansion in Mexico to support growth in its high-end Mexican beer portfolio. It anticipates a total capital expenditure of $5-$5.5 billion for the beer business between fiscal 2023 and 2026. The latest expansion will support an addition of up to 30 million hectoliters of modular capacity and includes the construction of a brewery in Southeast Mexico’s Veracruz. It also targets continued expansion and the optimization of the existing Nava and Obregon breweries.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Heineken (HEINY - Free Report) , PepsiCo (PEP - Free Report) and Monster Beverage (MNST - Free Report) .
Heineken, engaged in the brewing and selling of beer and cider, currently sports a Zacks Rank of 1 (Strong Buy). HEINY has an expected long-term earnings growth rate of 15.3% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Heineken’s current financial year’s sales and EPS suggests growth of 8% and 34.9%, respectively, from the year-ago reported figures.
PepsiCo is one of the leading global food and beverage companies. It currently has a Zacks Rank #2 (Buy). The company has an expected EPS growth rate of 7.7% for three to five years.
The Zacks Consensus Estimate for PepsiCo’s 2022 sales and earnings suggests growth of 7.1% and 8%, respectively, from the year-ago period’s reported figures. PEP has a trailing four-quarter earnings surprise of 4.5%, on average.
Monster Beverage is a marketer and distributor of energy drinks and alternative beverages. It currently has a Zacks Rank #2. MNST has a trailing four-quarter negative earnings surprise of 7.5%, on average.
The Zacks Consensus Estimate for Monster Beverage’s 2022 sales suggests growth of 15.2% from the year-ago period's reported figures. MNST has an expected EPS growth rate of 11.4% for three-five years.