Categories Analysis, Consumer

Earnings Preview: Constellation Brands (STZ) likely to end FY24 on a high note

The company has taken initiatives to boost its wine and spirits business in response to softening demand

Constellation Brands, Inc. (NYSE: STZ) has maintained stable sales and profitability in recent years, mainly on the strength of its thriving beer business while the wine and spirits division experienced weakness. The maker of popular beer brands like Corona and Modelo will be reporting fourth-quarter results on April 11.

After making steady gains since the beginning of the year, the company’s stock hit an all-time high last week. The shares have grown about 8% in the past 30 days, and the uptrend is expected to continue. Going by analysts’ positive outlook on STZ, it looks poised to move further up and hit the $300 mark in the next twelve months. It can be seen as a good buying opportunity. Though the stock has been up for some time, the valuation looks reasonable.

Q4 Report Due

As the brewer prepares to report its fourth-quarter results next week, Wall Street calls for a profit of $2.09, on a per-share basis. It marks an improvement from the year-ago quarter when the company earned $1.98 per share. Market watchers project net sales of $2.18 billion for Q4, which is up about 5% year-over-year. The report is expected to come on Thursday, April 11, at 7:30 a.m. ET.

Constellation Brands has outperformed the industry quite often in the recent past. The management is working to revive the wine and spirits business — the segment’s revenue share has come down to one-third of the total — by evolving the portfolio and through pricing and cost-efficiency efforts. It is important to maintain scale across all business segments because the beverage market is witnessing significant shifts in consumers’ preferences lately.  

Cash Flow

The company is upgrading its portfolio in response to the steady rise in the demand for higher-end brands and the decline in the demand for lower-end products. It has a disciplined capital allocation strategy and regularly returns cash to shareholders through buybacks and dividends – repurchased $215 million of shares in Q3 and offers a dividend yield of 1.6%. The company ended the quarter with a free cash flow of $1.4 billion.

During a recent interaction with analysts, Constellation Brands’ CEO Bill Newlands said, “Our beer brands clearly continue to resonate strongly with the consumer, and I’m incredibly proud of and thankful to our entire beer team for their consistently strong execution. With that backdrop, we remain confident in our fiscal ’24 net sales growth guidance of 8% to 9%. And from an operating income guidance perspective, we now expect our beer business to deliver 7% to 8% growth for fiscal ’24 as we realize additional benefits this year from the marketing effectiveness actions discussed during our Investor Day.”

Q3 Results

Earnings topped expectations in the third quarter, continuing the recent trend, while sales missed. At $509 million, or $2.76 per share, Q3 profit was up 10%. Sales edged up 1% annually to $2.47 billion aided by higher beer sales, which was partially offset by lower sales in the wine and spirits segment.

After retreating from the recent peak, Constellation Brands’ stock regained some momentum this week but traded lower in the early hours of Wednesday.

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