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Constellation Brands (STZ) Q4 Earnings Beat, Sales Miss

Constellation Brands, Inc. STZ has reported fourth-quarter fiscal 2023 results, wherein the bottom line beat the Zacks Consensus Estimate, while the top line lagged the same. However, the company’s fiscal fourth-quarter earnings and sales beat our estimates. Earnings and sales moved down year over year, driven by sales declines in the beer, and wine and spirits businesses as well as higher costs.

Comparable earnings of $1.98 per share for the fiscal fourth quarter declined 16% year over year. However, it surpassed the Zacks Consensus Estimate of $1.86 and our estimate of $1.89. On a reported basis, the company has recorded earnings of $1.21, down 42% from the year-ago quarter. Excluding the impacts of Canopy Growth, it has posted comparable earnings of $2.15 per share, down 16% from the year-ago period.

Net sales declined 5% year over year to $1,997.8 million and missed the Zacks Consensus Estimate of $2,030 million. However, it surpassed our estimate of $1,995.2 million. The net sales decline can be attributed to declines in the beer, and wine and spirits businesses.

Shares of the Zacks Rank #2 (Buy) company have risen 2.7% in the past three months compared with the industry’s growth of 3.7%.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Q4 Details

The company’s sales declined 2% to 1,535.6 million in the beer business, driven by a 5.4% decrease in shipment volumes, offset by 6.3% depletion growth. Depletion volume benefited 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. Modelo Especial continued to be the No. 2 beer brand in the high-end category, strengthening its leadership position. It was also the largest share gainer in dollar sales in the U.S. beer category in IRI channels. Meanwhile, Modelo Chelada was the No. 1 brand in the U.S. beer market and held more than 60% share of the entire chelada category.

Additionally, depletion for Corona Extra improved 4%. The brand retained its position as the third share gainer in the U.S. beer category in IRI channels.

Sales in the wine and spirits segment declined 14% to $462.2 million in the fiscal fourth quarter. Sales were affected by lower shipments and depletions for the segment. 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. However, depletions for the 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.

Constellation Brands Inc Price, Consensus and EPS Surprise

 

Constellation Brands Inc Price, Consensus and EPS Surprise
Constellation Brands Inc Price, Consensus and EPS Surprise

Constellation Brands Inc price-consensus-eps-surprise-chart | Constellation Brands Inc Quote

Margins

Constellation Brands' comparable operating income declined 10% to $591.8 million, whereas the comparable operating margin contracted 170 bps to 29.6%.

The operating margin in the beer segment contracted 510 bps to 34.1%. Higher COGS, driven by elevated raw material, packaging and logistics costs due to the persistent inflationary pressures, and higher SG&A expenses due to increased headcount hurt results. This was partly offset by improved pricing.

The wine and spirits segment’s operating margin expanded 500 bps to 27.7%, owing to strong performance across its Premium Wine, Fine Wine and Craft Spirits brands. Gains from favorable mix and optimization efforts resulted in lower grape costs. This was partly negated by lower volumes.

Financial Position

As of Feb 28, 2023, Constellation Brands’ cash and cash equivalents were $133.5 million, with long-term debt (excluding current maturities) of $11,286.5 million and total shareholders’ equity (excluding non-controlling interest) of $8,413.6 million. The company generated an operating cash flow of $2,756.9 million and an adjusted free cash flow of $1,721.5 million as of Feb 28.

On Apr 5, 2023, the company announced a quarterly dividend of 89 cents per share for Class A stock. The dividend is payable on May 18 to its shareholders of record as of May 4.

Outlook

Following the fiscal 2023 results, Constellation Brands has outlined its earnings view for fiscal 2024. The company expects comparable earnings of $11.70-$12 (excluding canopy growth impacts). It expects earnings of $11.60-$11.90 per share on a reported basis.

Notably, the company has reported comparable earnings of $10.65 per share and $11.40 (excluding canopy growth impacts) for fiscal 2023. On a reported basis, it has posted a loss of 11 cents for fiscal 2023.

Net sales are likely to increase 7.9% for the beer segment, with the operating income rising 5.7%. The company expects organic net sales for the wine and spirits business between down 0.5% and up 0.5%. The operating income for the segment is envisioned to grow 2-4%.

The company predicts interest expenses of $500 million for fiscal 2024, while corporate expenses are expected to be $270 million. It anticipates a reported and comparable tax rate of 19% for fiscal 2024.

Constellation Brands forecasts an operating cash flow of $2.4-$2.6 billion for fiscal 2024, whereas the free cash flow is estimated at $1.2-$1.3 billion. The company plans to incur a capital expenditure of $1.2-$1.3 billion in fiscal 2024.

The company outlined plans for incremental capacity expansion in Mexico to support growth in its high-end Mexican beer portfolio. It anticipates a total capital expenditure of $4-$4.5 billion for the beer business between fiscal 2024 and 2026. The latest 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.

Other Stocks to Consider

We highlighted some other top-ranked stocks from the broader Consumer Staples space, namely Coca-Cola FEMSA KOF, The Duckhorn Portfolio NAPA and Diageo DEO.

Coca-Cola FEMSA, which produces, markets and distributes soft drinks throughout the metropolitan area of Mexico City, currently sports a Zacks Rank of 1 (Strong Buy). KOF has an expected long-term earnings growth rate of 12% for three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Coca-Cola FEMSA’s current financial year’s sales and EPS suggests growth of 13.4% and 7.8%, respectively, from the year-ago reported figures. KOF has delivered a trailing four-quarter earnings surprise of 36.5%, on average.

Duckhorn is the premier producer of wines, principally in North America. It currently carries a Zacks Rank #2. The company has an expected EPS growth rate of 6.6% for three to five years.

The Zacks Consensus Estimate for Duckhorn’s fiscal 2023 sales and earnings suggests growth of 8.4% and 1.6%, respectively, from the year-ago period’s reported figures. NAPA has a trailing four-quarter earnings surprise of 13.5%, on average.

Diageo is involved in producing, distilling, brewing, bottling, packaging and distributing spirits, wine and beer. It currently has a Zacks Rank #2. DEO has an expected EPS growth rate of 8.2% for three-five years.

The Zacks Consensus Estimate for Diageo’s fiscal 2023 sales and EPS suggests growth of 18% and 8.7%, respectively, from the year-ago period's reported figures.

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