Constellation Brands, Inc. (STZ Quick QuoteSTZ - Free Report) reported fourth-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. The company’s sales and earnings improved year over year. Results have primarily gained from the continued strong performance of the beer business.

Comparable earnings of $2.26 per share for the fiscal fourth quarter grew 14% year over year and surpassed the Zacks Consensus Estimate of $2.10. On a reported basis, the company has recorded earnings of $2.14, up 77% from the year-ago quarter. Excluding the impacts of Canopy Growth, the company has posted comparable earnings of $2.30 per share, up 7% from the year-ago period.

Net sales rose 7% year over year to $2,139 million and outpaced the Zacks Consensus Estimate of $2,103 million. Sales growth was driven by continued strength in the beer business on solid depletion growth and the continued sales momentum in the Modelo brand family.

Shares of the Zacks Rank #3 (Hold) company have gained 2.9% in the past three months compared with the industry’s decline of 4.4%.

Q4 Details

The company’s sales for the beer business advanced 11% year over year to $1,702.8 million, driven by a 10.5% increase in shipment volumes and 8.9% depletion growth. Depletion volume benefited from the continued strong demand for its high-end brand portfolio, including Modelo Especial, Corona Extra, Pacifico and Modelo Chelada brands.

The depletion volume increased 14% for Modelo Especial and 14% for Modelo Chelada. Additionally, depletions improved 1% for Corona Extra and 22% for Pacifico.

Sales in the wine and spirits segment declined 6% to $436.4 million in the fiscal fourth quarter. Sales were affected by lower volumes for the segment, mainly affecting its premium brands, partly offset by a 14% increase in sales across the international markets. The shipment volume in the wine and spirits business declined 5% year over year, whereas depletions dropped 4.6%. Organic sales for the segment declined 6%, including a 5% fall in organic shipments.

Margins

Constellation Brands' comparable operating income was $630.7 million, up 7% from the prior-year quarter’s $591.8 million.

Operating income for the beer segment improved 7% year over year to $585.4 million. The operating margin for the beer segment expanded 30 bps to 34.4% due to sales growth, pricing actions, lower marketing spend and cost efficiencies.

Operating income for the wine and spirits segment declined 5% year over year to $111.1 million. The segment’s operating margin contracted 220 bps to 25.5%, as gains from favorability    in transportation    and warehousing costs, pricing and    lower SG&A    expenses more than offset by adverse channel mix.

Financial Position

As of Feb 29, 2024, Constellation Brands’ cash and cash equivalents were $152.4 million, long-term debt (excluding current maturities) was $10,681.1 million, and total shareholders’ equity (excluding non-controlling interest) was $9,743.1 million. The company generated an operating cash flow of $2,780 million and an adjusted free cash flow of $1,510.9 million as of Feb 29.

The company’s board announced a quarterly dividend of $1.01 per share for Class A stock, a hike of 13%. The dividend is payable on May 17 to its shareholders of record as of May 3.

Outlook

Constellation Brands issued an outlook for fiscal 2025. Management anticipates enterprise net sales increase of 6-7%, with beer segment’s sales growth of 7-9% and wine and spirits segment’s sales decline of 0.5% to up 0.5%. Enterprise reported operating income is likely to grow 10-12% while the comparable operating income is expected to rise 8-10%. Beer segment’s operating income is likely to grow 10-12%, and wine and spirits segment’s operating income is anticipated to decline 9-11%.

The company envisions its comparable earnings guidance of $13.50-$13.80 per share and reported earnings of $13.40-$13.70 for fiscal 2025. Notably, it reported comparable earnings between $12.06 per share and $12.38 (excluding canopy growth impacts) for fiscal 2023. Comparable earnings per share are anticipated to be in the range of $11.77-$11.97 for fiscal 2024.

The company predicts interest expenses of $445-$455 million for fiscal 2024, while corporate expenses are expected to be $260-$270 million. It anticipates both reported and comparable tax rates of 18.5%.

Constellation Brands forecasts an operating cash flow of $2.9-$3 billion for fiscal 2025. The company expects a free cash flow of $1.4-$1.5 billion. STZ plans to incur a capital expenditure of $1.4-$1.5 billion in fiscal 2025.

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