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Constellation Brands (STZ) Gains From Strong Beer Business
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Constellation Brands Inc. (STZ - Free Report) has retained its strong position amid the ongoing uncertainty and difficult macroeconomic conditions. The company continues to benefit from its solid brand portfolio and efforts to lift the brands through its premiumization efforts.
STZ’s beer business has been particularly gaining from robust performances of Modelo Especial and Corona Extra, and newer brands — Pacifico and the Modelo Chelada. The company continued this legacy in the first quarter of fiscal 2025, with the beer business net sales and operating income increasing 8% and 16% year over year, respectively. The increase was driven by robust volume growth, and cost and operational efficiencies across the beer business.
Beer business shipment volumes improved 7.6% year over year in the fiscal first quarter and depletions rose 6.4%. 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 11% for Modelo Especial, 21% for Pacifico and more than 5% for Modelo Chelada.
The beer segment also experienced gains from premiumization, driven by growth in traditional beer and flavored categories, including seltzers, flavored beer, RTD spirits and flavored malt beverages.
Additionally, its high-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, within the Wine & Spirits segment, have been the key growth drivers. The company is investing in its Power Brands through innovation and capitalizing on priority consumer trends with successful product introductions.
Robust View
Constellation Brands is optimistic about its performance in the near and medium terms. Management raised its reported EPS outlook for fiscal 2025 to $14.63-$14.93, following the strong fiscal first-quarter results. The company envisions a comparable EPS of $13.50-$13.80 for fiscal 2025, suggesting 10% year-over-year growth at mid-point. In fiscal 2024, STZ reported a comparable EPS of $12.38 and a GAAP EPS of $9.39. Additionally, the company is on track to reach its medium-term annual target of low-double-digit comparable EPS growth.
STZ anticipates a year-over-year 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 between a decline of 0.5% and growth of 0.5%. Enterprise reported operating income is expected to increase 10-12%, whereas the comparable operating income is likely to rise 8-10%.
The company anticipates operating income to improve 10-12% for the beer segment, with an operating margin of 39% and a decline of 9-11% for the wine and spirits segment. The operating margin for the beer segment is expected to be 39% for fiscal 2025. Corporate expenses are likely to be $260 million for fiscal 2025.
Headwinds on the Path
Constellation Brands is witnessing softness in the wine & spirits business. Challenging dynamics in the wine & spirits categories, particularly across most line price segments, are the key deterrents.
Sales for the wine and spirits segment decreased 7% in first-quarter fiscal 2025 driven by a 5.1% decrease in shipment volumes and a 12.7% fall in depletions. Soft volumes mainly stemmed from challenging market conditions, particularly in the U.S. wholesale channel for most price segments in the wine category.
Constellation Brands experienced elevated corporate expenses in first-quarter fiscal 2025 on higher compensation and benefits, and professional fees. The company anticipates a slight increase in corporate expenses in the coming quarters, mainly led by higher compensation and benefits, and investments in digital capabilities.
Additionally, STZ expects interest expenses to increase modestly due to reduced capitalized interest from its beer business expansion beyond the first quarter fiscal 2025. It also anticipates a minor increase in the effective tax rate, driven by incremental contributions from the wine and spirits business to the overall operating income. The company reiterated its fiscal 2025 forecast for corporate expenses and effective tax rate at $260 million and 18.5%, respectively. Additionally, it predicts interest expenses of $445-$455 million for fiscal 2025.
Coca-Cola’s strong brand equity, marketing, research and innovation help it garner a market share of more than 40% in the non-alcoholic beverage industry. KO is putting its best foot forward to evolve its business model to become a total beverage company with something for everyone to drink. Coca-Cola is focused on diversifying its portfolio to tap into the rapidly growing RTD alcohol beverages category as part of its innovation strategy.
Louisville, KY-based Brown-Forman is a leading alcoholic beverage company. It has been benefiting from increased demand for its brands, mainly Jack Daniel’s Tennessee Whiskey, and growth across all regions and the Travel Retail channel. The company is focused on investing in the diversification of its brand portfolio to drive growth. For more than a decade, Jack Daniel's Tennessee Whiskey has been the key contributor to the company’s growth in the United States.
Molson Coors, a global manufacturer and seller of beer and other beverage products, has an impressive and diverse portfolio of owned and partner brands. TAP is on track with its revitalization plan focused on achieving sustainable top-line growth by streamlining its organization and reinvesting resources into its brands and capabilities. Molson Coors has been committed to growing its market share through innovation and premiumization.
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Constellation Brands (STZ) Gains From Strong Beer Business
Constellation Brands Inc. (STZ - Free Report) has retained its strong position amid the ongoing uncertainty and difficult macroeconomic conditions. The company continues to benefit from its solid brand portfolio and efforts to lift the brands through its premiumization efforts.
STZ’s beer business has been particularly gaining from robust performances of Modelo Especial and Corona Extra, and newer brands — Pacifico and the Modelo Chelada. The company continued this legacy in the first quarter of fiscal 2025, with the beer business net sales and operating income increasing 8% and 16% year over year, respectively. The increase was driven by robust volume growth, and cost and operational efficiencies across the beer business.
Beer business shipment volumes improved 7.6% year over year in the fiscal first quarter and depletions rose 6.4%. 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 11% for Modelo Especial, 21% for Pacifico and more than 5% for Modelo Chelada.
The beer segment also experienced gains from premiumization, driven by growth in traditional beer and flavored categories, including seltzers, flavored beer, RTD spirits and flavored malt beverages.
Additionally, its high-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, within the Wine & Spirits segment, have been the key growth drivers. The company is investing in its Power Brands through innovation and capitalizing on priority consumer trends with successful product introductions.
Robust View
Constellation Brands is optimistic about its performance in the near and medium terms. Management raised its reported EPS outlook for fiscal 2025 to $14.63-$14.93, following the strong fiscal first-quarter results. The company envisions a comparable EPS of $13.50-$13.80 for fiscal 2025, suggesting 10% year-over-year growth at mid-point. In fiscal 2024, STZ reported a comparable EPS of $12.38 and a GAAP EPS of $9.39. Additionally, the company is on track to reach its medium-term annual target of low-double-digit comparable EPS growth.
STZ anticipates a year-over-year 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 between a decline of 0.5% and growth of 0.5%. Enterprise reported operating income is expected to increase 10-12%, whereas the comparable operating income is likely to rise 8-10%.
The company anticipates operating income to improve 10-12% for the beer segment, with an operating margin of 39% and a decline of 9-11% for the wine and spirits segment. The operating margin for the beer segment is expected to be 39% for fiscal 2025. Corporate expenses are likely to be $260 million for fiscal 2025.
Headwinds on the Path
Constellation Brands is witnessing softness in the wine & spirits business. Challenging dynamics in the wine & spirits categories, particularly across most line price segments, are the key deterrents.
Sales for the wine and spirits segment decreased 7% in first-quarter fiscal 2025 driven by a 5.1% decrease in shipment volumes and a 12.7% fall in depletions. Soft volumes mainly stemmed from challenging market conditions, particularly in the U.S. wholesale channel for most price segments in the wine category.
Constellation Brands experienced elevated corporate expenses in first-quarter fiscal 2025 on higher compensation and benefits, and professional fees. The company anticipates a slight increase in corporate expenses in the coming quarters, mainly led by higher compensation and benefits, and investments in digital capabilities.
Additionally, STZ expects interest expenses to increase modestly due to reduced capitalized interest from its beer business expansion beyond the first quarter fiscal 2025. It also anticipates a minor increase in the effective tax rate, driven by incremental contributions from the wine and spirits business to the overall operating income. The company reiterated its fiscal 2025 forecast for corporate expenses and effective tax rate at $260 million and 18.5%, respectively. Additionally, it predicts interest expenses of $445-$455 million for fiscal 2025.
A Synopsis of Other Stocks
The company shares space with Coca-Cola (KO - Free Report) , Brown-Forman (BF.B - Free Report) and Molson Coors (TAP - Free Report) in the broader beverages segment.
Coca-Cola’s strong brand equity, marketing, research and innovation help it garner a market share of more than 40% in the non-alcoholic beverage industry. KO is putting its best foot forward to evolve its business model to become a total beverage company with something for everyone to drink. Coca-Cola is focused on diversifying its portfolio to tap into the rapidly growing RTD alcohol beverages category as part of its innovation strategy.
Louisville, KY-based Brown-Forman is a leading alcoholic beverage company. It has been benefiting from increased demand for its brands, mainly Jack Daniel’s Tennessee Whiskey, and growth across all regions and the Travel Retail channel. The company is focused on investing in the diversification of its brand portfolio to drive growth. For more than a decade, Jack Daniel's Tennessee Whiskey has been the key contributor to the company’s growth in the United States.
Molson Coors, a global manufacturer and seller of beer and other beverage products, has an impressive and diverse portfolio of owned and partner brands. TAP is on track with its revitalization plan focused on achieving sustainable top-line growth by streamlining its organization and reinvesting resources into its brands and capabilities. Molson Coors has been committed to growing its market share through innovation and premiumization.