Constellation Brands (STZ) Q1 Earnings Beat, Sales Miss
Constellation Brands Inc. STZ has delivered first-quarter fiscal 2021 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while sales missed the same. With this, the company has reported earnings beat for the 10th consecutive quarter. Despite the impacts of the coronavirus outbreak, results have been primarily aided by robust depletions and strength in the off-premise channel.
Driven by the robust bottom-line results, shares of the company rose 2.9% in the pre-market trading session. In the past three months, shares of the Zacks Rank #3 (Hold) company rallied 33.3% compared with the industry’s 14.7% growth.
Constellation Brands posted fiscal first-quarter comparable earnings of $2.03 per share, which increased 4% year over year and beat the Zacks Consensus Estimate of $2.03. The reported figure included Canopy Growth equity loss of 15 cents. Excluding the impacts of Canopy Growth, the company posted earnings of $2.44 per share, which grew 2% from the year-ago quarter.
Net sales declined 6.4% to $1,963.4 million and missed the Zacks Consensus Estimate of $1,981.5 million.
At the company’s beer business, sales dropped 6.3% to $1,384.1 million, driven by a 7.2% decline in shipment volume, offset by 5.6% depletion growth, while organic shipment volume fell 6.3%. Organic sales for the business were down 4%. Depletion volume benefited from robust off-premise channel sales, which more than offset the 75% decline in the on-premise channel due to coronavirus outbreak-related closures. Adjusting for one less selling day in the quarter, the company reported depletion growth of 7%. Shipment volumes and distributor inventory levels were hurt by the slowdown of beer production in Mexico due to the impacts of the COVID-19 outbreak.
Solid portfolio depletions and market share gains mainly stemmed from continued strength in the Modelo and Corona Brand Families. Notably, depletions for the Modelo Brand Family increased 12%.
Sales at the wine and spirits segment declined 7% to $579.3 million in the fiscal first quarter. Further, organic net sales for the segment dropped 4%. While the segment witnessed a 12.9% decline in shipment volume and a 1.1% fall in depletions, organic shipment volume fell 9.2%.
Adjusted gross profit declined 5% year over year to $1,033.6 million. Also, the adjusted gross profit margin expanded 60 basis points (bps) to 52.6%.
Constellation Brands' comparable operating income declined 1% to $691.3 million, while comparable operating margin improved nearly 190 bps to 35.2%.
Further, the operating margin at the beer segment expanded 240 bps to 41.7%, owing to gains from the timing of marketing spends and favorable pricing, offset by higher cost of goods sold (COGS). Wine and spirits segment’s operating margin expanded 240 bps to 28.3% on mix benefits, favorable price and lower SG&A expenses, offset by the divestiture of Black Velvet and higher COGS.
Constellation Brands ended the fiscal first quarter with cash and cash equivalents of $302.8 million. As of May 31, 2020, it had $11,639.3 million in long-term debt (excluding current maturities) along with total shareholders’ equity (excluding non-controlling interest) of $11,377.6 million.
In fiscal 2020, Constellation Brands generated operating cash flow of $686.5 million and adjusted free cash flow of $542.3 million.
On Jun 30, 2020, the company announced a quarterly dividend of 75 cents per share for Class A and 68 cents for Class B stock. The dividend is payable Aug 25 to its shareholders of record as of Aug 11.
Fiscal 2021 Outlook
Driven by the potential impacts of the coronavirus outbreak, the company is not able to provide guidance for fiscal 2021.
However, for the beer segment, it expects the slowed beer production in Mexico due to the COVID-19 outbreak to continue hurting shipments and distribution inventory in the fiscal second quarter. However, product inventories are likely to return to normal levels in the fiscal third quarter. Moreover, the company’s long-term outlook for the beer business remains unchanged.
3 Stocks to Consider From the Beverage Industry
The Boston Beer Company, Inc. SAM delivered a positive earnings surprise of 4.7%, on average, in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Craft Brew Alliance, Inc. BREW, with a Zacks Rank #1 at present, delivered a positive earnings surprise of 150% in the last reported quarter.
Reeds, Inc. REED, with a long-term earnings growth rate of 20%, currently sports a Zacks Rank #1.
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