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Constellation Brands Q2 profit beats; stock dips on loss from Canopy investment

Beverage company Constellation Brands (NYSE: STZ) reported a decline in second-quarter earnings, despite a modest increase in sales aided by strong beer sales. Earnings topped the Street view, while the top-line matched expectations. Meanwhile, the stock dropped early Thursday as the company incurred a bigger loss from investments in the shares of Canopy Growth (GCG).

Second-quarter earnings, on an adjusted basis, dropped to $2.72 per share from $2.87 per share last year. Analysts had forecast a faster year-over-year decline. Excluding the Canopy Growth equity losses, net earnings were $2.91per share.

Constellation Brands Q2 profit drops but beats estimates

On an unadjusted basis, the company reported a net loss of $525.2 million or $2.77 per share for the three-month period, compared to a profit of $1.15 billion or $5.87 per share in the second quarter of 2019.

Sales up 2%

There was a 2% increase in net sales to $2.34 billion during the quarter, which was in line with the market’s prediction.

“The winning streak for our beer business continues with Modelo Especial generating the most growth in the entire U.S. beer category. Our Wine & Spirits innovation pipeline is primed to launch impactful product introductions, as we head into the key selling season this fall,” said CEO Bill Newlands.

Outlook

Meanwhile, the management revised its full-year earnings forecast to the range of $0.55 per share to $0.75 per share, and the outlook for adjusted earnings to $9.00-$9.20 per share. The revised forecast assumes the closure of the Wine and Spirits transaction at the end of the third quarter and completion of the Black Velvet transaction in November.

Also see: Aurora, Canopy Growth to be the biggest gainers

The full-year cash flow target has been revised up to $2.2 billion and free cash flow estimate to $1.3-$1.4 billion. It continues to expect the beer business to register a 7-9% growth in net sales and operating income in fiscal 2020.

Stock Buyback

During the quarter, the company repurchased around 266,000 shares for $50 million. It also agreed to sell the Black Velvet Canadian Whisky business to Heaven Hill Brands for $266 million.

Related: Constellation Brands Q1 2020 Earnings Call Transcript

Constellation Brands shares have gained 22% so far this year, continuing the recovery that began towards the end of 2018. The stock lost about 3% early Thursday immediately after the earnings announcement, after closing the last session lower.

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