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Things You Must Know Before Constellation's (STZ) Q2 Earnings

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Constellation Brands, Inc. (STZ - Free Report) is scheduled to release second-quarter fiscal 2020 results on Oct 3.

Notably, this leading wine company delivered a positive earnings surprise in the preceding four quarters,  the average beat being 10.5%.

Constellation Brands Inc Price and EPS Surprise

Constellation Brands Inc Price and EPS Surprise

Constellation Brands Inc price-eps-surprise | Constellation Brands Inc Quote

How Are Estimates Faring

The Zacks Consensus Estimate for second-quarter earnings stands at $2.61, indicating a 9.1% decline from the year-ago quarter’s reported figure. Further, the consensus mark has moved south by a penny in the past seven days. For second-quarter revenues, the consensus mark is pegged at $2.33 billion, suggesting a 1.4% rise from the prior-year quarter’s reported figure.

Factors at Play

Constellation Brands has been delivering a strong performance, evident from its consistent earnings record and strength in the beer business. The company is also poised to gain from exposure in the cannabis space with its investment in Canopy Growth. Furthermore, its constant brand-building efforts, acquisitions and innovation are commendable.

Strength in Constellation Brands’ beer business has been a key growth driver. In first-quarter fiscal 2020, sales at the beer business improved for the 37th straight quarter, owing to an increase in shipments and depletions. In fact, the beer business is the most significant contributor to the U.S. beer market, courtesy of gains at Modelo Especial, Corona Premier and Corona Refresca. These brands were aided by superb distribution gains and strong innovation.

Additionally, Constellation Brands’ consistent focus on brand building and initiatives to include new products are aiding the top line. Owing to its endeavors, the company is experiencing an increase in market share, especially in the U.S. beer category.

Its innovation and marketing efforts are well recognized in the beverage market. Recently, the company launched Corona Refresca in the Corona brand family. The brand has gained the entire commodity volume or ACV distribution of above 30 since its launch. In the summer selling season, this brand is poised for growth in the flavored malt beverage category. The company is also witnessing solid response for some of its previously-launched innovations, including SVEDKA Rose, Robert Mondavi Private Selection, Rum Barrel-Aged Merlot, and Crafters Union, Wine in a Can.

Additionally, management will continue enhancing its Bourbon Barrel Aged innovation program, which sold more than 1 million cases in the first two years. For fiscal 2020, the company has a strong innovation pipeline, with planned launches for the Woodbridge Rose and Robert Mondavi Private Selection.

Moreover, it expects to expand consumer marketing efforts for fiscal 2020, with new sponsorship opportunities, including the PGA, the U.S. Tennis Association and several NFL teams for Meiomi, Kim Crawford and Woodbridge brands.

Backed by these initiatives, Constellation Brands is likely to post solid top- and bottom-line improvements in the upcoming quarterly results.

However, softness in the company’s wine & spirits business has been significantly weighing on these positive factors. Lower shipment volumes and depletions are hurting the segment’s sales. Although Constellation Brands has announced the divestiture of nearly 30 low-end brands from the wine & spirits portfolio, the segment’s growth might take time.

Despite the encouraging divestiture plan, net sales (on a reported basis) for this business are estimated to decline 20-25% in fiscal 2020, with the operating income decreasing 25-30%. The guidance for the wine & spirits business includes impacts from the sale of its brands to Gallo.

Further, the company issued a bearish outlook for fiscal 2020, due to impacts from the adjustments related to losses from the Canopy Growth deal (mostly higher interest expense) and other activities along with the wine and spirits divestitures.

For fiscal 2020, interest expenses are now expected to be $425-$435 million, up from the prior projection of $420-$430 million. The view includes an additional interest of $105 million related to the 2018 Canopy investment. This might weigh on the company’s bottom line and hurt its performance in second-quarter fiscal 2020.

What the Zacks Model Predicts

Our proven model does not conclusively predict that Constellation Brands is likely to beat earnings estimates in second-quarter fiscal 2020. A stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Constellation Brands has a Zacks Rank #3 but an Earnings ESP of -1.83%, which makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to deliver an earnings beat:

Keurig Dr Pepper, Inc. (KDP - Free Report) has an Earnings ESP of +2.28% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Estee Lauder Companies Inc. (EL - Free Report) has an Earnings ESP of +1.44% and a Zacks Rank #2.

Lamb Weston Holdings Inc. (LW - Free Report) has an Earnings ESP of +4.18% and a Zacks Rank #3.

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