Shares of Constellation Brands (NYSE: STZ) stayed in red territory despite the company reporting better-than-expected results for the third quarter of 2022. Both revenue and earnings beat estimates and the company updated its adjusted EPS outlook for the full year.
Net sales declined 5% year-over-year to $2.32 billion on both a reported and comparable basis but surpassed market estimates. Net income attributable to CBI was $470.8 million, or $2.48 per share, compared to $1.28 billion, or $6.55 per share, in the year-ago period. On a comparable basis, EPS rose 1% to $3.12. Excluding Canopy losses, EPS rose 8% to $3.42, exceeding expectations.
Within the Beer segment, net sales increased 4% year-over-year to $1.75 billion. Strength in Modelo Especial and explosive growth from Corona Extra helped drive depletion growth of more than 8% for the segment. Modelo Especial achieved a depletion growth of 13% while Modelo Chelada posted 35% depletion growth. Corona Extra reported depletion growth of 11%. All these brands witnessed share gains during the quarter.
Within Wine and Spirits, net sales declined 25% to $568 million. Organic net sales increased 3%. The Prisoner Brand Family, Kim Crawford, and Meiomi brands contributed to the company’s share gains in the high-end of the US wine market. Constellation’s Wine business outpaced the US wine market by double-digits in the 3-Tier ecommerce channel during the quarter. This was led by a 27% growth in Meiomi.
Constellation updated its capacity investment plans in Mexico which were expected to support the growth of its high-end Mexican beer portfolio. The investment will support an additional 25-30 million hectoliters of total capacity and includes the construction of a new brewery in Southeast Mexico. It also includes the expansion of the existing sites at Nava and Obregon. Total CapEx for the Beer business is now expected to be $5-5.5 billion over FY2023 to FY2026.
Constellation has entered into an agreement with The Coca-Cola Company (NYSE: KO) to bring the FRESCA brand into beverage alcohol through the launch of FRESCA Mixed, a line of ready-to-drink cocktails. According to its research, adult alternative beverages is an approx. $8 billion segment projected to grow at a CAGR of 15-17% over the next three years. These investments are expected to help Constellation expand its portfolio and drive growth over the long term.
Constellation revised its earnings outlook for FY2022. On a reported basis, the company now expects a loss of $0.25 per share to $0.10 per share. On a comparable basis, it expects EPS of $10.50-10.65. In the Beer segment, net sales are expected to grow 10-11% and operating income is estimated to grow 6-7%. In the Wine and Spirits segment, net sales are expected to decline 21-22% while operating income is expected to decline 23-25%. On an organic basis, net sales are expected to grow 4-6%.
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