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Earnings Preview: Constellation Brands

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Constellation Brands Inc. (STZ - Free Report) – the largest wine company in the world – is scheduled to release its financial results for the second quarter of fiscal 2013 before the opening bell on Friday, October 5, 2012. The Zacks Consensus Estimate for the quarter is 54 cents per share, representing a year-over-year decline of approximately 29.9%.

The year-over-year decline in earnings is due to a loss of income from the company’s Australian and U.K. businesses, which were sold off earlier this year.

With respect to earnings surprises, Constellation has topped the Zacks Consensus Estimate in all except the November quarter of 2011. The average surprise over the last four quarters was 33.6%.

First Quarter Fiscal 2013 - A Synopsis

In June 2012, Constellation posted improved bottom-line results for the first quarter, with earnings per share of 40 cents surpassing the Zacks Consensus Estimate as well as prior-period earnings of 39 cents. However, net sales in the quarter remained almost flat at $634.8 million from the year-ago quarter while missing the Zacks Consensus forecast Estimate of $646 million.

In its earnings release, the company reiterated fiscal 2013 adjusted earnings per share guidance in the band of $1.93–$2.03 per share compared with $2.34 in fiscal 2012. On a reported basis, the company expects earnings per share in the range of $1.89–$1.99 per share compared with $2.13 in fiscal 2012.

Zacks Consensus

The analysts following the stock expect Constellation to post second-quarter fiscal 2013 earnings of 54 cents a share, lower than the 77 cents delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between 51 cents and 56 cents a share.

For fiscal 2013, the Zacks Consensus Estimate stands at $1.99 per share, which is lower than the previous fiscal earnings of $2.34. Currently, the Zacks Consensus Estimate ranges between $1.93 and $2.03 a share.

Agreement & Magnitude of Earnings Estimate Revisions

We do not see any estimate revisions over the last 30 days, either for the second quarter or fiscal 2013,. Therefore, the magnitude of estimate revisions for the company depicts a neutral outlook and remains unchanged for the third quarter as well as fiscal 2013.

Our Recommendation

We believe that continued focus on brand building and promotion along with strategic acquisitions will accelerate Constellation Brands’ growth opportunities while strengthening its market position. Additionally, in an effort to generate strong margins, Constellation Brands is focusing on high-priced segments across all key categories. The company also recently acquired a California-based wine company – Mark West – which is anticipated to enhance its presence in the wine market.

However, Constellation faces intense competition from other well-established players in the industry, including Beam Inc. and Diageo plc (DEO - Free Report) . Moreover, the company competes with local and regional players in the respective countries, which may affect its operating performance in the future.

Currently, Constellation has a Zacks #3 Rank, implying a short-term Hold rating. Moreover, we are maintaining our long-term Neutral recommendation on the stock.

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