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Constellation Brands (STZ) Down 2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Constellation Brands (STZ - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Constellation Brands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Constellation Brands Q1 Earnings Beat, Solid View

Constellation Brands reported first-quarter fiscal 2025 results, wherein the bottom line beat the Zacks Consensus Estimate and improved year over year. However, the company’s net sales marginally missed the consensus mark. Results primarily benefited from the continued strong performance of the beer business and an improved operating margin.

Comparable earnings of $3.57 per share improved 17% year over year in the fiscal first quarter and beat the Zacks Consensus Estimate of $3.46. On a reported basis, the company reported earnings per share of $4.78, up significantly from 74 cents earned in the year-ago quarter.

Net sales increased 6% year over year to $2.66 billion but missed the Zacks Consensus Estimate of $2.67 billion. Sales growth was driven by continued strength in the beer business on solid volume growth and strong demand across most of its portfolio.

Constellation Brands' sales for the beer business advanced 8% year over year to $2.3 billion, backed by a solid 7.6% increase in shipment volumes and 6.4% depletion volume growth. Depletion volumes were aided by robust demand for most of its brand portfolio, led by strength in the Modelo Especial, Pacifico and Modelo Chelada brands. The depletion volume increased by 11% for Modelo Especial, 21% for Pacifico and more than 5% for Modelo Chelada. However, depletions declined more than 1% for Corona Extra.

Sales in the wine and spirits segment declined 7% to $389 million in the fiscal first quarter. Sales were affected by a 5.1% decrease in shipment volumes and a 12.7% fall in depletions. The soft volumes mainly stemmed from challenging market conditions, particularly in the U.S. wholesale channel for most price segments in the wine category.

Margins

Constellation Brands' comparable operating income was $924 million, up 12% from the prior-year quarter. The growth was driven by robust operating income in the beer business, offset by a decline in the wine and spirits segment.

Operating income for the beer segment improved 16% year over year to $923 million. The operating margin for the beer segment expanded 260 bps to 40.6% due to fixed cost absorption led by sales growth, gains from ongoing cost-saving initiatives, and timing and efficiencies in marketing investments. This was partly negated by the adverse currency rate and higher depreciation from brewery capacity expansion.

Operating income for the wine and spirits segment declined 25% year over year to $59.7 million. The segment’s operating margin contracted 370 bps to 15.3%, as gains from lower SG&A and marketing expenses were more than offset by lower volumes and higher COGS.

Financial Position

As of May 31, 2024, Constellation Brands’ cash and cash equivalents were $73.8 million, long-term debt (excluding current maturities) was $10.7 billion, and total shareholders’ equity (excluding non-controlling interest) was $10.6 billion. The company generated an operating cash flow of $690.5 million and an adjusted free cash flow of $315.2 million as of May 31.

STZ’s board announced a quarterly dividend of $1.01 per share for Class A stock on Jul 2, 2024. The dividend is payable on Aug 23 to its shareholders of record as of Aug 14.

Outlook

Constellation Brands revised its reported EPS outlook for fiscal 2025. Management anticipates an enterprise net sales increase of 6-7% for fiscal 2025, with 7-9% sales growth for the beer segment. Meanwhile, sales for the wine and spirits segment are expected to be between a decline of 0.5% and a growth of 0.5%.

The company anticipates enterprise operating income to increase 10-12% for fiscal 2025, while the comparable operating income is expected to rise 8-10%. The company expects operating income to improve by 10-12% for the beer segment and decline by 9-11% for the wine and spirits segment. Corporate expenses are expected to be $260 million for fiscal 2025.

The company envisions comparable earnings of $13.50-$13.80 per share for fiscal 2025. It raised its reported fiscal 2025 EPS view to $14.63-$14.93 compared with $13.40-$13.70 mentioned earlier. It reported comparable earnings per share of $12.38 and reported EPS of $9.39 in fiscal 2024.

Constellation Brands predicts interest expenses of $445-$455 million for fiscal 2024. It anticipates a reported tax rate of 12% and a comparable tax rate of 18.5% for fiscal 2025. The company expects shares outstanding to be 183 million at the end of fiscal 2025, inclusive of share repurchases.

Constellation Brands reaffirmed its forecast for operating cash flow of $2.8-$3 billion for fiscal 2025. It expects a free cash flow of $1.4-$1.5 billion. STZ plans to incur capital expenditure of $1.4-$1.5 billion in fiscal 2025.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Constellation Brands has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Constellation Brands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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