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Constellation Brands (STZ) Misses on Q1 Earnings, Updates View
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Constellation Brands Inc. (STZ - Free Report) has reported lower-than-expected first-quarter fiscal 2022 results, whereas the top and bottom lines improved year over year. Despite the tough comparisons due to last year’s pandemic-led pantry-loading activity, the company’s beer business posted double-digit growth in shipments and depletion volume. Moreover, Constellation Brands raised its comparable earnings per share view for fiscal 2022.
Despite lower-than-expected results, shares of the company rose 1.5% in pre-market trading. In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 1.5% compared with the industry’s rally of 13%.
Image Source: Zacks Investment Research
Q1 Highlights
Constellation Brands posted fiscal first-quarter comparable earnings of $2.33 per share, which rose 1% year over year but missed the Zacks Consensus Estimate of $2.35. On a reported basis, the company incurred a loss per share of $4.74, which included Canopy Growth equity losses of 18 cents. Excluding the impacts of Canopy Growth, it posted comparable earnings of $2.51 per share, up 3% from the year-ago period.
Net sales improved 3% to $2,026.5 million but lagged the Zacks Consensus Estimate of $2,050.8 million. Organic net sales advanced 14% year over year.
At the company’s beer business, sales improved 14% to $1,572 million, driven by an 11.3% increase in shipment volumes and 10.7% depletion volume growth. Depletion volume benefited from robust consumer demand in the off-premise channel as well as the return of the on-premise channel to growth. Solid portfolio depletions and market share gains in the beer business stemmed from continued strength in Modelo and Corona Brand Family. Moreover, depletion growth was aided by more than 35% growth in Pacifico, which was the top share gainer in the import segment.
Notably, depletion increased 12% for the Modelo Especial and more than 7% for the Corona Brand Family. The Modelo brand strengthened its position as the leader in the high-end category, becoming the No. 2 beer brand. It was also the largest share gainer in dollar sales in the U.S. beer category in IRI channels. Meanwhile, depletions for the Corona brand benefited from growth in Corona Premier, Corona Hard Seltzer and Corona Extra, leading it to be the No. 2 share gainer in IRI channels.
Constellation Brands Inc Price, Consensus and EPS Surprise
Sales in the wine and spirits segment decreased 22% to $454.5 million in the fiscal first quarter. Meanwhile, organic net sales for the segment grew 16%. Organic net sales benefited from gains from consumer-driven innovation initiatives. However, some of the SKUs witnessed out-of-stock conditions due to the impacts of global supply-chain logistics, route to market changes, and the company's transition to SAP.
Shipment volume in the wine and spirits business slumped 38%, while depletions fell 7.5%. Organic shipment volumes were up 6.3%. In the United States, the shipment volume dipped 39.4%, with organic shipments improving 11.1%.
Margins
Adjusted gross profit advanced 7% year over year to $1,101.2 million. Meanwhile, adjusted gross profit margin expanded 170 basis points (bps) to 54.3%.
Constellation Brands' comparable operating income rose 5% to $592.5 million, while comparable operating margin expanded 50 bps to 35.7%.
Further, the operating margin in the beer segment expanded 110 bps to 42.8% due to favorable pricing, lower SG&A expense rate and positive currency translations. This was somewhat offset by a rise in marketing spend and a higher cost of goods sold. The wine and spirits segment’s operating margin contracted 540 bps to 22.9% on the bulk sales of smoke-tainted wine, which was margin-dilutive as well as higher SG&A and marketing expense, as a percentage of sales. This was partly offset by gains from favorable pricing and an improved mix due to divestitures.
Financial Position
Constellation Brands ended the fiscal first quarter with cash and cash equivalent of $503.8 million. As of May 31, 2021, it had $9,914.8 million in long-term debt (excluding current maturities) along with total shareholders’ equity (excluding non-controlling interest) of $12,261.6 million.
On May 31, 2021, Constellation Brands generated an operating cash flow of $716 million and adjusted free cash flow of $602.1 million.
On Jun 29, 2021, the company announced a quarterly dividend of 76 cents per share for Class A stock and 69 cents for Class B stock. The dividend is payable Aug 24 to its shareholders of record as of Aug 10.
Other Developments
In January 2021, Constellation Brands completed the previously agreed-upon deal to divest a portion of its wine and spirits portfolio to E. & J. Gallo Winery. Simultaneously, the company sealed its separate but related deal with Gallo to sell the New Zealand-based Nobilo Wine brand, and related assets and liabilities. Later, it also concluded the sale of the Paul Masson Grande Amber Brandy brand, and related inventory and interests to Sazerac. Additionally, in December 2020, it completed the divestiture of certain brands, related inventory, interests in contracts and liabilities of its grape juice concentrate business to Vie-Del Company.
Management is planning to invest in the next phase of capacity in Mexico, which will help meet the potential demand for the high-end Mexican beer portfolio, including the emerging Alternative Beverage Alcohol sub-space, which includes hard seltzers. Per the plan, the company projected $700-$900 million expenses in order to support 15 million hectoliters of capacity expansion between fiscal 2023 and 2025.
Due to the current situation in Mexicali, Constellation Brands will not be able to use the previously planned site, which resulted in a $666-million impairment charge in the first quarter of fiscal 2022. This is also included in its fiscal 2022 guidance. However, the company will incur costs of roughly $650-$680 million related to the expansion activity in the fiscal first quarter.
Outlook
Constellation Brands updated its earnings guidance for fiscal 2022. The company continues to expect net sales growth of 7-9% for the beer segment. Operating income for the beer business is expected to increase 3-5%. Net sales and operating income for the wine and spirits business are estimated to decline 22-24% and 23-25%, respectively. Organic sales for the wine and spirits segment are likely to grow 2-4%.
Further, the company now expects interest expenses of $360-$370 million for fiscal 2022. Further, it anticipates a tax rate of 37% and weighted average diluted shares outstanding 193million. The company expects $1 billion of share repurchases for fiscal 2022.
Driven by the aforementioned factors, Constellation Brands estimates reported earnings per share of $2.70-$3, down from $6.90-$7.20 stated earlier. On a comparable basis, excluding the Canopy business, earnings per share are expected to be $10-$10.30, up from $9.95-$10.25 mentioned earlier. The company reported earnings per share of $10.23 on a reported basis and $10.44 on a comparable basis, excluding Canopy Growth in fiscal 2021.
Moreover, Constellation Brands expects to generate an operating cash flow of $2.4-$2.6 billion for fiscal 2022, while free cash flow is estimated to be $1.4-$1.5 billion. The company plans to incur capital expenditure of $1-$1.1 billion in fiscal 2022, excluding $900 targeted for the Mexican beer operations’ expansion activities.
Archer Daniels Midland Company (ADM - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 6.2%.
Chewy Inc. (CHWY - Free Report) has an expected long-term earnings growth rate of 20%. It currently carries a Zacks Rank #2.
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Constellation Brands (STZ) Misses on Q1 Earnings, Updates View
Constellation Brands Inc. (STZ - Free Report) has reported lower-than-expected first-quarter fiscal 2022 results, whereas the top and bottom lines improved year over year. Despite the tough comparisons due to last year’s pandemic-led pantry-loading activity, the company’s beer business posted double-digit growth in shipments and depletion volume. Moreover, Constellation Brands raised its comparable earnings per share view for fiscal 2022.
Despite lower-than-expected results, shares of the company rose 1.5% in pre-market trading. In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 1.5% compared with the industry’s rally of 13%.
Image Source: Zacks Investment Research
Q1 Highlights
Constellation Brands posted fiscal first-quarter comparable earnings of $2.33 per share, which rose 1% year over year but missed the Zacks Consensus Estimate of $2.35. On a reported basis, the company incurred a loss per share of $4.74, which included Canopy Growth equity losses of 18 cents. Excluding the impacts of Canopy Growth, it posted comparable earnings of $2.51 per share, up 3% from the year-ago period.
Net sales improved 3% to $2,026.5 million but lagged the Zacks Consensus Estimate of $2,050.8 million. Organic net sales advanced 14% year over year.
At the company’s beer business, sales improved 14% to $1,572 million, driven by an 11.3% increase in shipment volumes and 10.7% depletion volume growth. Depletion volume benefited from robust consumer demand in the off-premise channel as well as the return of the on-premise channel to growth. Solid portfolio depletions and market share gains in the beer business stemmed from continued strength in Modelo and Corona Brand Family. Moreover, depletion growth was aided by more than 35% growth in Pacifico, which was the top share gainer in the import segment.
Notably, depletion increased 12% for the Modelo Especial and more than 7% for the Corona Brand Family. The Modelo brand strengthened its position as the leader in the high-end category, becoming the No. 2 beer brand. It was also the largest share gainer in dollar sales in the U.S. beer category in IRI channels. Meanwhile, depletions for the Corona brand benefited from growth in Corona Premier, Corona Hard Seltzer and Corona Extra, leading it to be the No. 2 share gainer in IRI channels.
Constellation Brands Inc Price, Consensus and EPS Surprise
Constellation Brands Inc price-consensus-eps-surprise-chart | Constellation Brands Inc Quote
Sales in the wine and spirits segment decreased 22% to $454.5 million in the fiscal first quarter. Meanwhile, organic net sales for the segment grew 16%. Organic net sales benefited from gains from consumer-driven innovation initiatives. However, some of the SKUs witnessed out-of-stock conditions due to the impacts of global supply-chain logistics, route to market changes, and the company's transition to SAP.
Shipment volume in the wine and spirits business slumped 38%, while depletions fell 7.5%. Organic shipment volumes were up 6.3%. In the United States, the shipment volume dipped 39.4%, with organic shipments improving 11.1%.
Margins
Adjusted gross profit advanced 7% year over year to $1,101.2 million. Meanwhile, adjusted gross profit margin expanded 170 basis points (bps) to 54.3%.
Constellation Brands' comparable operating income rose 5% to $592.5 million, while comparable operating margin expanded 50 bps to 35.7%.
Further, the operating margin in the beer segment expanded 110 bps to 42.8% due to favorable pricing, lower SG&A expense rate and positive currency translations. This was somewhat offset by a rise in marketing spend and a higher cost of goods sold. The wine and spirits segment’s operating margin contracted 540 bps to 22.9% on the bulk sales of smoke-tainted wine, which was margin-dilutive as well as higher SG&A and marketing expense, as a percentage of sales. This was partly offset by gains from favorable pricing and an improved mix due to divestitures.
Financial Position
Constellation Brands ended the fiscal first quarter with cash and cash equivalent of $503.8 million. As of May 31, 2021, it had $9,914.8 million in long-term debt (excluding current maturities) along with total shareholders’ equity (excluding non-controlling interest) of $12,261.6 million.
On May 31, 2021, Constellation Brands generated an operating cash flow of $716 million and adjusted free cash flow of $602.1 million.
On Jun 29, 2021, the company announced a quarterly dividend of 76 cents per share for Class A stock and 69 cents for Class B stock. The dividend is payable Aug 24 to its shareholders of record as of Aug 10.
Other Developments
In January 2021, Constellation Brands completed the previously agreed-upon deal to divest a portion of its wine and spirits portfolio to E. & J. Gallo Winery. Simultaneously, the company sealed its separate but related deal with Gallo to sell the New Zealand-based Nobilo Wine brand, and related assets and liabilities. Later, it also concluded the sale of the Paul Masson Grande Amber Brandy brand, and related inventory and interests to Sazerac. Additionally, in December 2020, it completed the divestiture of certain brands, related inventory, interests in contracts and liabilities of its grape juice concentrate business to Vie-Del Company.
Management is planning to invest in the next phase of capacity in Mexico, which will help meet the potential demand for the high-end Mexican beer portfolio, including the emerging Alternative Beverage Alcohol sub-space, which includes hard seltzers. Per the plan, the company projected $700-$900 million expenses in order to support 15 million hectoliters of capacity expansion between fiscal 2023 and 2025.
Due to the current situation in Mexicali, Constellation Brands will not be able to use the previously planned site, which resulted in a $666-million impairment charge in the first quarter of fiscal 2022. This is also included in its fiscal 2022 guidance. However, the company will incur costs of roughly $650-$680 million related to the expansion activity in the fiscal first quarter.
Outlook
Constellation Brands updated its earnings guidance for fiscal 2022. The company continues to expect net sales growth of 7-9% for the beer segment. Operating income for the beer business is expected to increase 3-5%. Net sales and operating income for the wine and spirits business are estimated to decline 22-24% and 23-25%, respectively. Organic sales for the wine and spirits segment are likely to grow 2-4%.
Further, the company now expects interest expenses of $360-$370 million for fiscal 2022. Further, it anticipates a tax rate of 37% and weighted average diluted shares outstanding 193million. The company expects $1 billion of share repurchases for fiscal 2022.
Driven by the aforementioned factors, Constellation Brands estimates reported earnings per share of $2.70-$3, down from $6.90-$7.20 stated earlier. On a comparable basis, excluding the Canopy business, earnings per share are expected to be $10-$10.30, up from $9.95-$10.25 mentioned earlier. The company reported earnings per share of $10.23 on a reported basis and $10.44 on a comparable basis, excluding Canopy Growth in fiscal 2021.
Moreover, Constellation Brands expects to generate an operating cash flow of $2.4-$2.6 billion for fiscal 2022, while free cash flow is estimated to be $1.4-$1.5 billion. The company plans to incur capital expenditure of $1-$1.1 billion in fiscal 2022, excluding $900 targeted for the Mexican beer operations’ expansion activities.
Better-Ranked Stocks to Consider
Heineken NV (HEINY - Free Report) has a long-term earnings growth rate of 5.2%. It currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Archer Daniels Midland Company (ADM - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 6.2%.
Chewy Inc. (CHWY - Free Report) has an expected long-term earnings growth rate of 20%. It currently carries a Zacks Rank #2.
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 3 crypto-related stocks now >>