Categories Analysis, Consumer

New product launches and a trimmed portfolio bode well for Constellation Brands (STZ)

For FY2021, Constellation expects reported EPS of $10.30-10.55

Shares of Constellation Brands Inc. (NYSE: STZ) have gained over 21% in the past three months and 20% over the past one year. The company reported strong results for the third quarter of 2021 last week overcoming the challenges faced in 2020 due to the COVID-19 pandemic. The introduction of new products and the streamlining of its product portfolio have proven beneficial and will help drive growth in the future as well.

Quarterly numbers

Net sales increased 22%, both on a reported and comparable basis year-over-year, to $2.43 billion. EPS amounted to $6.55 on a reported basis and $3.09 on a comparable basis. Excluding Canopy Growth equity losses, on a comparable basis, EPS increased 32% to $3.16.

New products

Constellation saw strong performance in its beer business with accelerating trends in IRI channels. The segment reported a net sales growth of 28% and witnessed strong consumer demand for core beer brands. Despite a 35% reduction in the on-premise channel due to the pandemic, the company saw strong performance in the off-premise channel which helped deliver a depletion growth of 12% during the quarter.

The Corona brand family grew around 12% in IRI channels fueled by Corona Premier, Corona Hard Seltzer and Corona Extra. Corona Hard Seltzer has surpassed expectations and holds the number four position in the Hard Seltzer category. It is also the second fastest moving hard seltzer among major seltzer brands, with incrementality levels at around 90%.

Constellation plans on launching Corona Hard Seltzer Variety Pack No. 2 early next fiscal year. These product launches are expected to boost the company’s competitive position in the fast-growing hard seltzer category, expand its distribution and improve its market share in the high end of the US beer market.

Wine portfolio

The Wine and Spirits segment saw a 10% growth in net sales during the quarter. Constellation divested a portion of its wines business, including the Nobilo Wine brand, to Gallo and this transaction closed in January. The company also sold its concentrate business to Vie-Del in December. Constellation is also divesting its Paul Masson Grande Amber Brandy brand and expects this transaction to close later in January.

On closing these transactions, Constellation received cash of approx. $560 million along with the opportunity to gain up to $250 million in earnouts if brand performance targets are met over a three-year period after closing. The Nobilo deal yielded around $130 million while the Paul Masson deal is expected to yield around $265 million.

With the completion of the divestitures, the Wines and Spirits business is anticipated to yield net sales growth in the low to mid-single digits. The remaining portfolio, post the Gallo deal, is expected to grow 2-4% in FY2021. Following these divestitures, the company can now focus its resources on a smaller set of premium brands which will yield higher growth and margins.

Outlook

For FY2021, Constellation expects reported EPS of $10.30-10.55 and comparable EPS of $9.80-10.05. The Beer segment is expected to generate net sales growth of 7-9%.

Click here to read the full transcript of Constellation Brands Q3 2021 earnings conference call

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