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Earnings preview: High costs to take fizz out of Constellation Brands’ Q4 results

Constellation Brands (STZ), the brewer of popular beer brand Corona, is slated to publish its fourth-quarter results on April 4 before the opening bell. The consensus Wall Street estimate is for a 9% drop in earnings to $1.73 per share. Revenues are predicted to slip about 2% to $1.73 billion. Market watchers are of the view that the chances of earnings beating the forecast are low this time, unlike in the trailing two quarters when the company gave positive surprises.

The impact of the negative factors, mainly the unfavorable market conditions and rising marketing expenses, could be offset by the strength of the company’s iconic beer brands to a large extent. The beer business, led by the Corona and Modelo Especial brands, has remained the main growth driver for several years, all along outperforming the American beer market.

Constellation Brands q3 2019 earnings snapshot
Constellation Brands Q3 2019 Earnings Infographic

It is estimated that in the longer term, the company’s overall performance will be boosted by its strong fundamentals and recent investments in the cannabis sector, primarily the acquisition of a majority stake in Canopy Growth. The other contributing factors include the development of the company’s digital platform and the management’s aggressive efforts at brand-building.

Long-term growth is expected to be boosted by recent investments in the cannabis sector, primarily the acquisition of a majority stake in Canopy Growth

Earlier, Constellation Brands had trimmed its full-year2019 earnings outlook to reflect interest expenses related to the funding availed for the acquisition of Canopy Growth last year, as well as the weakness in the wine and spirit business. The lackluster performance of the segment is expected to continue in the coming quarters.

In the third quarter, a double-digit increase in beer sales pushed up revenues and adjusted earnings by 9% and 18% respectively, which also surpassed the estimates. Unadjusted profit, including loss from unconsolidated investments, fell 38% during the quarter.

Last month, rival winemaker Molson Coors Brewing Company’s (TAP) reported a 6% decline in sales to $2.4 billion, which also missed the estimates. Meanwhile, adjusted earnings rose sharply to $0.84 per share aided by favorable pricing and solid volume growth.

Shares of Constellation Brands have been in a downward spiral after hitting an all-time high about twelve months ago. After suffering a significant loss in 2018, the stock made a modest recovery this year, gaining about 3.7% so far.

 

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