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Earnings preview: Weed biz in focus as Constellation Brands gears up for Q1 report

The lackluster financial performance of Constellation Brands (NYSE: STZ) in the recent quarters has raised speculations about the investment made by the beverage giant in the consumer marijuana business, which is yet to yield the desired results.  

The company will be releasing its earnings report for the most recent quarter, ended May 2019, on Friday before the market’s open. Market watchers forecast earnings of $2.09 per share for the quarter, representing a 5% decrease from the same period of last year. The estimate for revenues is $2.07 billion, up 1% year-over-year.

Constellation Brands posts Q4 2019 earnings results
Constellation brands Q4 EPS down 3%

The management’s recent decision to divest some of the underperforming wine and spirit brands shows that the efforts to revive the struggling business were not fruitful. The upcoming report will give a clear picture as to whether the bullish outlook on the remaining wine and spirit brands is justified. Like in the past, growth will be driven by the thriving beer business this time too, and that will be the case in the foreseeable future. 

Like in the past, growth will be driven by the thriving beer business this time too

Constellation Brands ended the last fiscal year on a soft note in terms of earnings and top-line performance. Though total sales rose by 2% to $1.8 billion in the fourth quarter, aided by stable demand for the beer brands, it was the weakest performance in nearly five years. Partially offsetting that, the sale of wine and spirits dropped 8%, dragging down adjusted earnings to $1.84 per share.

Related: Constellation Brands Q3 2019 Earnings Call Transcript

Investors can look for an improvement in returns as the company will likely use the excess cash from the recent brand sales for stock buyback and dividend payment. Going forward, the ongoing brand-building efforts and innovations, combined with the firm’s exposure to the emerging weed market, will help it return to the high-growth mode. Long-term investor sentiment will depend on the value of returns generated from the $4-billion investment made in Canada-based marijuana company Canopy Growth.

Meanwhile, Canopy Growth is reportedly planning to use the cash received from Constellation Brands for strategic acquisitions. The main buyout targets will be companies holding the intellectual property for popular marijuana-based products.

Shares of Constellation Brands witnessed a great deal of volatility in recent months. They gained 11% since January 2019. The stock, which is down 22% from the record highs seen nearly a year ago, is currently struggling to recover from last month’s sharp fall.

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