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Will Premiumization Keep Constellation (STZ) in Good Stride?
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Constellation Brands Inc. (STZ - Free Report) has been witnessing momentum, owing to strength in its beer portfolio, with the continued robust performance of Modelo Especial and Corona Extra, and newer brands, Pacifico and the Modelo Chelada. Moreover, the company’s premiumization strategy is playing out well, evident from accelerated growth of the Power Brands.
The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s current financial year's sales and earnings suggests growth of 6.1% and 9.5%, respectively, from the year-ago period’s reported number.
The stock has risen 2.2% in the past year compared with the industry’s and the Consumer Staple sector’s growth of 1.6% and 0.7%, respectively.
Image Source: Zacks Investment Research
Growth Drivers
Constellation Brands is on track with its premiumization strategy. In the wine & spirits segment, the company’s premium brands have been witnessing accelerated growth over the past few quarters. Its high-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, were key growth drivers in fourth-quarter fiscal 2023.
Depletions for the wine and spirits segment were partly aided by a high-single-digit rise in The Prisoner Brand Family, low-double-digit gains for High West Whiskey and mid-single-digit growth in the Ignite portfolio. The company’s Aspira portfolio yielded double-digit shipment growth.
Within the beer segment, gains from the premiumization efforts are evident from the growth in traditional beer, as well as the flavors category, including seltzers, flavored beer, RTD spirits and flavored malt beverages. The company is making investments to fuel the growth of its power brands through innovation, capitalizing on priority and consumer trends, with successful product introductions.
As a part of its efforts, Constellation Brands is also on track with its plans 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 expansion will support an addition of up to 30 million hectoliters of modular capacity and includes the construction of a brewery in Southeast Mexico’s Veracruz. It also targets continued expansion and the optimization of the existing Nava and Obregon breweries.
Constellation Brands has been significantly gaining from strength in the beer business over the years. Despite a decline in sales in the fourth quarter, the company witnessed a strong depletion volume on solid beer business trends. The beer segment reported depletion growth of 6.3%, benefiting from the continued robust performance of Modelo Especial and Corona Extra, and newer brands, Pacifico and the Modelo Chelada. Depletion volume increased 9% for Modelo Especial and about 45% for Modelo Chelada. Additionally, depletion for Corona Extra improved 4%.
For fiscal 2024, Net sales are likely to increase 7-9% for the beer segment, with the operating income rising 5-7%.
Headwinds to Address
Constellation Brands has been witnessing softness in its wine & spirits business for a while now. Sales for the wine and spirits segment decreased 14% in fourth-quarter fiscal 2023. Shipment volume in the wine and spirits business declined 22.1% year over year, whereas depletions dropped 4.9%. Organic sales for the segment declined 9%, including an 18.9% dip in organic shipments. For fiscal 2024, the company expects organic net sales for the wine and spirits business between down 0.5% and up 0.5%.
Moreover, it has been witnessing weak margins stemming from inflation, higher operating costs from brewery expansions and elevated marketing expenses. Higher COGS, driven by elevated raw material, packaging and logistics costs, hurt the beer business’ operating margin in the fiscal fourth quarter. Persistent inflationary pressures and higher SG&A expenses have also been weighing on results, despite improved pricing.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely, Molson Coors (TAP - Free Report) , Monster Beverage (MNST - Free Report) and PepsiCo Inc. (PEP - Free Report) .
Molson Coors currently sports a Zacks Rank #1 (Strong Buy). TAP has a trailing four-quarter earnings surprise of 32.1%, on average. Shares of TAP have rallied 26.8% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Molson Coors’ current financial year sales and earnings suggests growth of 5.4% and 7.6%, respectively, from the year-ago period’s reported figures. TAP has an expected EPS growth rate of 4.3% for three to five years.
Monster Beverage currently sports a Zacks Rank #1. The company has an expected EPS growth rate of 22.9% for three to five years. Shares of MNST have rallied 32.2% in the past year.
The Zacks Consensus Estimate for Monster Beverage’s sales and earnings per share for the current financial year suggests growth of 12.5% and 38.4%, respectively, from the year-ago period’s reported figures. MNST has a trailing four-quarter negative earnings surprise of 4.1%, on average.
PepsiCo has a trailing four-quarter earnings surprise of 6.3%, on average. It currently carries a Zacks Rank #2 (Buy). Shares of PEP have gained 12% in the past year.
The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings suggests growth of 4.9% and 7.5%, respectively, from the year-ago period's reported figures. PEP has an expected EPS growth rate of 7.8% for three to five years.
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Will Premiumization Keep Constellation (STZ) in Good Stride?
Constellation Brands Inc. (STZ - Free Report) has been witnessing momentum, owing to strength in its beer portfolio, with the continued robust performance of Modelo Especial and Corona Extra, and newer brands, Pacifico and the Modelo Chelada. Moreover, the company’s premiumization strategy is playing out well, evident from accelerated growth of the Power Brands.
The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s current financial year's sales and earnings suggests growth of 6.1% and 9.5%, respectively, from the year-ago period’s reported number.
The stock has risen 2.2% in the past year compared with the industry’s and the Consumer Staple sector’s growth of 1.6% and 0.7%, respectively.
Image Source: Zacks Investment Research
Growth Drivers
Constellation Brands is on track with its premiumization strategy. In the wine & spirits segment, the company’s premium brands have been witnessing accelerated growth over the past few quarters. Its high-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, were key growth drivers in fourth-quarter fiscal 2023.
Depletions for the wine and spirits segment were partly aided by a high-single-digit rise in The Prisoner Brand Family, low-double-digit gains for High West Whiskey and mid-single-digit growth in the Ignite portfolio. The company’s Aspira portfolio yielded double-digit shipment growth.
Within the beer segment, gains from the premiumization efforts are evident from the growth in traditional beer, as well as the flavors category, including seltzers, flavored beer, RTD spirits and flavored malt beverages. The company is making investments to fuel the growth of its power brands through innovation, capitalizing on priority and consumer trends, with successful product introductions.
As a part of its efforts, Constellation Brands is also on track with its plans 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 expansion will support an addition of up to 30 million hectoliters of modular capacity and includes the construction of a brewery in Southeast Mexico’s Veracruz. It also targets continued expansion and the optimization of the existing Nava and Obregon breweries.
Constellation Brands has been significantly gaining from strength in the beer business over the years. Despite a decline in sales in the fourth quarter, the company witnessed a strong depletion volume on solid beer business trends. The beer segment reported depletion growth of 6.3%, benefiting from the continued robust performance of Modelo Especial and Corona Extra, and newer brands, Pacifico and the Modelo Chelada. Depletion volume increased 9% for Modelo Especial and about 45% for Modelo Chelada. Additionally, depletion for Corona Extra improved 4%.
For fiscal 2024, Net sales are likely to increase 7-9% for the beer segment, with the operating income rising 5-7%.
Headwinds to Address
Constellation Brands has been witnessing softness in its wine & spirits business for a while now. Sales for the wine and spirits segment decreased 14% in fourth-quarter fiscal 2023. Shipment volume in the wine and spirits business declined 22.1% year over year, whereas depletions dropped 4.9%. Organic sales for the segment declined 9%, including an 18.9% dip in organic shipments. For fiscal 2024, the company expects organic net sales for the wine and spirits business between down 0.5% and up 0.5%.
Moreover, it has been witnessing weak margins stemming from inflation, higher operating costs from brewery expansions and elevated marketing expenses. Higher COGS, driven by elevated raw material, packaging and logistics costs, hurt the beer business’ operating margin in the fiscal fourth quarter. Persistent inflationary pressures and higher SG&A expenses have also been weighing on results, despite improved pricing.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely, Molson Coors (TAP - Free Report) , Monster Beverage (MNST - Free Report) and PepsiCo Inc. (PEP - Free Report) .
Molson Coors currently sports a Zacks Rank #1 (Strong Buy). TAP has a trailing four-quarter earnings surprise of 32.1%, on average. Shares of TAP have rallied 26.8% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Molson Coors’ current financial year sales and earnings suggests growth of 5.4% and 7.6%, respectively, from the year-ago period’s reported figures. TAP has an expected EPS growth rate of 4.3% for three to five years.
Monster Beverage currently sports a Zacks Rank #1. The company has an expected EPS growth rate of 22.9% for three to five years. Shares of MNST have rallied 32.2% in the past year.
The Zacks Consensus Estimate for Monster Beverage’s sales and earnings per share for the current financial year suggests growth of 12.5% and 38.4%, respectively, from the year-ago period’s reported figures. MNST has a trailing four-quarter negative earnings surprise of 4.1%, on average.
PepsiCo has a trailing four-quarter earnings surprise of 6.3%, on average. It currently carries a Zacks Rank #2 (Buy). Shares of PEP have gained 12% in the past year.
The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings suggests growth of 4.9% and 7.5%, respectively, from the year-ago period's reported figures. PEP has an expected EPS growth rate of 7.8% for three to five years.