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3 Reasons to Hold Constellation Brands (STZ) Before Q2 Earnings
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Constellation Brands Inc. (STZ - Free Report) looks well-poised for growth in the second quarter of fiscal 2023, driven by the continued momentum in its business, particularly the beer category. The company is also expected to gain from strong consumer demand for its portfolio of premium, high-end products.
STZ’s wine & spirits business has been benefiting from its premiumization strategy focused on making investments to fuel growth of its power brands through innovation, capitalizing on priority, consumer trends, and product introductions. Its endeavors to adapt to the changes in the market, particularly growth of hard seltzer, have been tailwinds.
The company boasts a robust surprise trend. It reported the third straight quarter of earnings and sales beat in first-quarter fiscal 2023. The top and bottom lines also improved year over year. Results benefited from strong consumer demand for its portfolio of premium, high-end products. Also, double-digit net sales and operating income growth in the beer business aided the top and bottom lines.
Constellation Brands’ shares have rallied 14.2% in the past year compared with the industry’s growth of 0.5%. The stock performance has also compared favorably with the sector’s 5.5% and S&P 500’s 12.4% declines.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for the Zacks Rank #2 (Buy) company’s current financial year’s sales and earnings suggests growth of 7.5% and 8.7%, respectively, from the year-ago period’s reported number.
Let’s look into some aspects that are likely to keep the stock going in the long run.
Premiumization Efforts
Constellation Brands' premiumization strategy is playing out well, as evident from the accelerated growth for the wine & spirits segment’s Power Brands in first-quarter fiscal 2023. The company's high-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, were key growth drivers. For fiscal 2023, the company expects net sales for the wine and spirits business to decline 1-3%, while the operating income is envisioned to grow 4-6%.
The beer segment is also witnessing gains from premiumization, driven by growth in traditional beer as well as flavors category, including seltzers, flavored beer, RTD spirits and flavored malt beverages. The company is making investments to fuel growth of its power brands through innovation, capitalizing on priority and consumer trends, with successful product introductions.
Earlier, Constellation Brands signed a brand authorization agreement with Coca-Cola to manufacture, market and distribute the new FRESCA Mixed cocktails in the United States. As part of the deal, FRESCA Mixed is likely to be launched this fall in vodka strips and tequila Paloma.
Beer Business Momentum
Constellation Brands has been significantly gaining from strength in the beer business over the years. Sales advanced 21% at the company's beer business in the fiscal first quarter, including a 17.3% increase in shipment volumes and 8.7% depletion of volume 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 resilient growth in Corona Extra.
For fiscal 2023, net sales are likely to grow 7-9% for the beer segment. Operating income for the segment is anticipated to increase 2-4%.
Constellation Brands is on track to invest in the next phase of capacity expansion in Mexico. This 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. The company outlined plans for incremental capacity expansion in Mexico to support growth of 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.
Upbeat View
Constellation Brands provided an upbeat view for fiscal 2023. The company expects comparable earnings of $11.20-$11.50 (excluding canopy growth impacts). It expects earnings of $10.50-$10.80 per share on a reported basis compared with the $11.15-$11.45 mentioned earlier. These suggest improvements from comparable earnings (excluding canopy growth impacts) of $10.99 and a reported loss of 22 cents in the prior year. The company predicts interest expenses of $350-$360 million for fiscal 2023.
Conclusion
Although soft margins stemming from elevated COGS, as well as marketing and SG&A expenses, remain dragging, we believe that the company’s investments in high-end beer and spirit brands bode well. STZ is also poised to benefit from efforts to explore the hard seltzer market. The efforts might offset the ongoing supply-chain challenges and elevated material costs due to higher commodity prices.
Other Stocks to Consider
We have highlighted some other top-ranked stocks from the broader Consumer Staples space, namely PepsiCo Inc. (PEP - Free Report) , Fomento Economico Mexicano (FMX - Free Report) and Carlsberg (CABGY - Free Report)
PepsiCo is one of the leading global food and beverage companies. It currently has a Zacks Rank #2. The company has an expected EPS growth rate of 7.7% for three to five years. Shares of PEP have gained 8.7% in the past year.
The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings suggests growth of 5.6% and 6.4%, respectively, from the year-ago period’s reported figures. PEP has a trailing four-quarter earnings surprise of 3.8%, on average.
Fomento Economico Mexicano, alias FEMSA, has exposure to various industries, including beverage, beer and retail, which gives it an edge over its competitors. It currently has a Zacks Rank #2. FMX has a trailing four-quarter earnings surprise of 18.9%, on average. Shares of FMX have lost 24.3% in the past year.
The Zacks Consensus Estimate for FEMSA’s current financial-year sales suggests growth of 11.3% from the year-ago period's reported figure. FMX has an expected EPS growth rate of 11.4% for three-five years.
Carlsberg produces and sells beer and other beverage products in Denmark. It currently has a Zacks Rank #2. Shares of CABGY have declined 21.4% in the past year.
The Zacks Consensus Estimate for Carlsberg’s current financial year’s sales suggests growth of 8.8% from the year-ago period’s reported figure, while the same for earnings per share indicates a decline of 9.8%. CABGY has an expected EPS growth rate of 9.1% for three-five years.
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3 Reasons to Hold Constellation Brands (STZ) Before Q2 Earnings
Constellation Brands Inc. (STZ - Free Report) looks well-poised for growth in the second quarter of fiscal 2023, driven by the continued momentum in its business, particularly the beer category. The company is also expected to gain from strong consumer demand for its portfolio of premium, high-end products.
STZ’s wine & spirits business has been benefiting from its premiumization strategy focused on making investments to fuel growth of its power brands through innovation, capitalizing on priority, consumer trends, and product introductions. Its endeavors to adapt to the changes in the market, particularly growth of hard seltzer, have been tailwinds.
The company boasts a robust surprise trend. It reported the third straight quarter of earnings and sales beat in first-quarter fiscal 2023. The top and bottom lines also improved year over year. Results benefited from strong consumer demand for its portfolio of premium, high-end products. Also, double-digit net sales and operating income growth in the beer business aided the top and bottom lines.
Constellation Brands’ shares have rallied 14.2% in the past year compared with the industry’s growth of 0.5%. The stock performance has also compared favorably with the sector’s 5.5% and S&P 500’s 12.4% declines.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for the Zacks Rank #2 (Buy) company’s current financial year’s sales and earnings suggests growth of 7.5% and 8.7%, respectively, from the year-ago period’s reported number.
Let’s look into some aspects that are likely to keep the stock going in the long run.
Premiumization Efforts
Constellation Brands' premiumization strategy is playing out well, as evident from the accelerated growth for the wine & spirits segment’s Power Brands in first-quarter fiscal 2023. The company's high-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, were key growth drivers. For fiscal 2023, the company expects net sales for the wine and spirits business to decline 1-3%, while the operating income is envisioned to grow 4-6%.
The beer segment is also witnessing gains from premiumization, driven by growth in traditional beer as well as flavors category, including seltzers, flavored beer, RTD spirits and flavored malt beverages. The company is making investments to fuel growth of its power brands through innovation, capitalizing on priority and consumer trends, with successful product introductions.
Earlier, Constellation Brands signed a brand authorization agreement with Coca-Cola to manufacture, market and distribute the new FRESCA Mixed cocktails in the United States. As part of the deal, FRESCA Mixed is likely to be launched this fall in vodka strips and tequila Paloma.
Beer Business Momentum
Constellation Brands has been significantly gaining from strength in the beer business over the years. Sales advanced 21% at the company's beer business in the fiscal first quarter, including a 17.3% increase in shipment volumes and 8.7% depletion of volume 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 resilient growth in Corona Extra.
For fiscal 2023, net sales are likely to grow 7-9% for the beer segment. Operating income for the segment is anticipated to increase 2-4%.
Constellation Brands is on track to invest in the next phase of capacity expansion in Mexico. This 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. The company outlined plans for incremental capacity expansion in Mexico to support growth of 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.
Upbeat View
Constellation Brands provided an upbeat view for fiscal 2023. The company expects comparable earnings of $11.20-$11.50 (excluding canopy growth impacts). It expects earnings of $10.50-$10.80 per share on a reported basis compared with the $11.15-$11.45 mentioned earlier. These suggest improvements from comparable earnings (excluding canopy growth impacts) of $10.99 and a reported loss of 22 cents in the prior year. The company predicts interest expenses of $350-$360 million for fiscal 2023.
Conclusion
Although soft margins stemming from elevated COGS, as well as marketing and SG&A expenses, remain dragging, we believe that the company’s investments in high-end beer and spirit brands bode well. STZ is also poised to benefit from efforts to explore the hard seltzer market. The efforts might offset the ongoing supply-chain challenges and elevated material costs due to higher commodity prices.
Other Stocks to Consider
We have highlighted some other top-ranked stocks from the broader Consumer Staples space, namely PepsiCo Inc. (PEP - Free Report) , Fomento Economico Mexicano (FMX - Free Report) and Carlsberg (CABGY - Free Report)
PepsiCo is one of the leading global food and beverage companies. It currently has a Zacks Rank #2. The company has an expected EPS growth rate of 7.7% for three to five years. Shares of PEP have gained 8.7% in the past year.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings suggests growth of 5.6% and 6.4%, respectively, from the year-ago period’s reported figures. PEP has a trailing four-quarter earnings surprise of 3.8%, on average.
Fomento Economico Mexicano, alias FEMSA, has exposure to various industries, including beverage, beer and retail, which gives it an edge over its competitors. It currently has a Zacks Rank #2. FMX has a trailing four-quarter earnings surprise of 18.9%, on average. Shares of FMX have lost 24.3% in the past year.
The Zacks Consensus Estimate for FEMSA’s current financial-year sales suggests growth of 11.3% from the year-ago period's reported figure. FMX has an expected EPS growth rate of 11.4% for three-five years.
Carlsberg produces and sells beer and other beverage products in Denmark. It currently has a Zacks Rank #2. Shares of CABGY have declined 21.4% in the past year.
The Zacks Consensus Estimate for Carlsberg’s current financial year’s sales suggests growth of 8.8% from the year-ago period’s reported figure, while the same for earnings per share indicates a decline of 9.8%. CABGY has an expected EPS growth rate of 9.1% for three-five years.