Categories Analysis, Consumer

Constellation Brands (STZ): Earnings beat and share structure revamp put brewer in the spotlight

Comparable EPS is expected to range between $11.20-11.50 in FY2023

Shares of Constellation Brands Inc. (NYSE: STZ) were down 4% on Thursday despite the company beating expectations on its first quarter 2023 earnings results. The stock has dropped 7% year-to-date. Alongside its earnings, the brewer announced its decision to overhaul its share structure which created a buzz on the Street.

Quarterly performance

Constellation reported net sales of $2.3 billion in Q1, which was up 17% from the prior-year period and ahead of market estimates. On a reported basis, the company delivered net income of $390 million, or $2.06 per share, compared to a loss of $908 million, or $4.74 per share, last year. On a comparable basis, EPS rose 14% year-over-year to $2.66, beating projections.  

Change to share structure

Constellation announced that it has entered into an agreement with the Sands family to eliminate its Class B common stock. As per the agreement, each outstanding share of the company’s Class B common stock, including those owned by the Sands Family, will be converted into the right to receive one share of Class A common stock plus cash consideration in the amount of $64.64 per share of Class B common stock, or a total amount of $1.5 billion. This will help simplify the company’s equity capital structure as well as provide operating cost savings and administrative savings.

Segment performance

The beer segment posted net sales growth of 21% in Q1 along with depletion growth of almost 9% driven by the strong performance of Modelo Especial and Corona Extra. Modelo Especial gained more than 15% depletion growth while Corona Extra posted depletion growth of over 4%. The company expects net sales in the beer segment to increase 7-9% in FY2023.

Net sales in the wine and spirits segment rose 2% YoY. Depletion growth remained positive driven by double-digit growth for Meiomi, The Prisoner Wine Company, High West Whiskey and Casa Noble Tequila. The fine wine and craft spirits portfolio achieved 16% depletion growth during the quarter. For FY2023, net sales in the wine and spirits segment is expected to decline 1-3%.

Outlook

For FY2023, Constellation now expects reported EPS of $10.50-10.80 versus the prior outlook of $11.15-11.45. Comparable EPS is expected to range between $11.20-11.50. Operating cash flow is projected to range between $2.6-2.8 billion while free cash flow is estimated to be $1.3-1.4 billion.

Click here to access the full transcripts of the latest earnings conference calls

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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