The good and the bad from Constellation Brands’ (STZ) Q4 earnings report

Shares of Constellation Brands, Inc. (NYSE: STZ) have gained 35% in the past 12 months. The company reported its fourth quarter 2021 earnings results a day ago. Even though the top and bottom line numbers were better than expected, the outlook for the upcoming fiscal year did not impress investors. Let’s take a look at the positives and negatives from the company’s earnings report:

Better-than-expected results

Net sales rose 3% year-over-year to $1.95 billion, both on a reported and comparable basis, beating estimates. Despite declining 12% YoY, adjusted EPS of $1.82 came in better than analysts’ projections.

Strength in beer

The beer segment reported a 16% growth in net sales to $1.37 billion in the fourth quarter versus the prior-year period. Depletion growth was 6.4% as strength in the off-premise channels helped offset the pandemic-induced weakness in the on-premise channels.

In FY2021, Constellation saw growth in its beer business for the 11^th consecutive year helped by strength across its beer portfolio, led by brands such as Modelo Especial, Modelo Negra and Modelo Chelada within its Casa Modelo brand family. Modelo Especial witnessed double-digit growth with over 145 million cases sold last year.

The company’s Corona brand family also delivered strong performance in the year, with Corona Extra growing IRI dollar sales by 11% and exceeding $2 billion in retail sales. Constellation is rolling out new products within hard seltzers and it plans to invest around $60 million to support the expansion of this category.

On its quarterly conference call, Constellation stated that recent four-week IRI trends indicated that the company’s beer business was significantly outpacing the total US beer industry and outperforming the high end of the beer market. In FY2022, beer sales are expected to grow 7-9%. The strength in its beer business and the segment’s growth potential have given analysts optimism over the company’s future growth prospects.

Weakness in wine

In Q4, net sales in the wine and spirits segment fell 19% YoY to $576.3 million while depletion volume was down nearly 7%. Shipment volume declined around 33% reflecting the brands divested during the quarter. Operating margin dropped 900 basis points to 19.9% mainly due to the negative impact of wildfires, higher expenses as well as divestitures.

In FY2022, net sales in the wine and spirits segment are projected to decline 22-24% and operating income is estimated to fall 23-25%. Operating margin is estimated to be approx. 24% which indicates little change from last year.

Disappointing outlook

For fiscal year 2022, Constellation expects reported EPS to be $6.90-7.20. Adjusted EPS is estimated to range between $9.95-10.25. This range fell below the expectations of analysts who were predicting adjusted EPS of $10.41.

Click here to read the full transcript of Constellation Brands Q4 2021 earnings conference call