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Constellation Brands' (STZ) Q4 Earnings & Sales Top Estimates

·6 min read

Constellation Brands Inc. STZ has reported fourth-quarter fiscal 2021 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. With this, the company has reported an earnings beat for the 13th consecutive quarter. Despite the impacts of the coronavirus outbreak, results were primarily aided by strong shipments and robust depletion growth at the company’s beer business. Moreover, it outlined its view for fiscal 2022.

Despite solid results, shares of the company fell nearly 4% in pre-market trading. In the past three months, shares of this Zacks Rank #2 (Buy) company have gained 3.8% against the industry’s 1.1% decline.

Q4 Highlights

Constellation Brands posted fiscal fourth-quarter comparable earnings of $1.82 per share, which declined 12% year over year but beat the Zacks Consensus Estimate of $1.49. Earnings on a reported basis, including Canopy Growth equity loss of 12 cents, were $1.95 per share. Excluding the impacts of Canopy Growth, the company posted comparable earnings of $1.93 per share, down 11% from the year-ago period.

Net sales advanced 3% to $1,953 million and surpassed the Zacks Consensus Estimate of $1,853 million.

At the company’s beer business, sales improved 16% to $1,376.7 million, driven by a 16% increase in shipment volumes and 6.4% depletion volume growth. Organic shipment volume rose 17%. Organic sales for the beer segment were up 18%. Depletion volume benefited from robust off-premise channel sales, which more than offset the 43% decline in the on-premise channel due to the coronavirus outbreak.

Solid portfolio depletions and market share gains mainly stemmed from continued strength in the Modelo. Notably, depletion for the Modelo Especial increased nearly 9%.

Sales in the wine and spirits segment decreased 19% to $576.3 million in the fiscal fourth quarter. Meanwhile, organic net sales for the segment grew 8%. Moreover, shipment volumes slumped 32.9%, while depletions fell 6.8%. Organic shipment volumes were up 3.3%. The segment benefited from double-digit volume growth at high-end Power Brands, including Kim Crawford, Meiomi and The Prisoner Brand Family, which outpaced the total high-end wine category.

Margins

Adjusted gross profit advanced 5% year over year to $1,016.5 million. Meanwhile, adjusted gross profit margin expanded 90 basis points (bps) to 52%.

Constellation Brands' comparable operating income fell 6% to $563.6 million, while comparable operating margin contracted nearly 260 bps to 28.9%.

Further, the operating margin in the beer segment contracted 250 bps to 36.8% due to a rise in marketing spend and higher cost of goods sold (COGS). This somewhat offset gains from SG&A expenses, as a percentage of sales, favorable currency and the Ballast Point divestiture. The wine and spirits segment’s operating margin contracted 900 bps to 19.9% as elevated COGS stemming from wildfires along with higher marketing and SG&A costs were partly offset by gains from a favorable mix.

Financial Position

Constellation Brands ended the fiscal fourth quarter with cash and cash equivalent of $460.6 million. As of Feb 28, 2021, it had $10,413.1 million in long-term debt (excluding current maturities) along with total shareholders’ equity (excluding non-controlling interest) of $13,929.1 million.

In fiscal 2021, Constellation Brands generated an operating cash flow of $2,806.5 million and adjusted free cash flow of $1,941.9 million.

On Apr 7, 2021, the company announced a quarterly dividend of 76 cents per share for Class A stock and 69 cents for Class B stock. The dividend is payable on May 18 to its shareholders of record as of May 4.

Other Developments

On Jan 5, 2021, Constellation Brands completed the previously agreed-upon deal to divest a portion of its wine and spirits portfolio to E. & J. Gallo Winery. Simultaneously, the company sealed its separate but related deal with Gallo to sell the New Zealand-based Nobilo Wine brand, and related assets and liabilities. Meanwhile, Constellation Brands concluded the sale of the Paul Masson Grande Amber Brandy brand, and related inventory and interests in January 2021 to Sazerac. Additionally, in December 2020, it completed the divestiture of certain brands, related inventory, interests in contracts and liabilities of its grape juice concentrate business to Vie-Del Company.

Moving on, management revealed plans to invest in the next phase of capacity in Mexico, which will help meet the potential demand for the high-end Mexican beer portfolio, including the emerging Alternative Beverage Alcohol sub-space, which includes hard seltzers. Per the plan, the company projected $700-$800 million expenses in order to support 15 million hectoliters of capacity expansion during fiscal 2023-2025. However, it will incur costs of roughly $650-$680 million related to this expansion activity in the fiscal first quarter.

Constellation Brands Inc Price, Consensus and EPS Surprise

Constellation Brands Inc Price, Consensus and EPS Surprise
Constellation Brands Inc Price, Consensus and EPS Surprise

Constellation Brands Inc price-consensus-eps-surprise-chart | Constellation Brands Inc Quote

Outlook

Constellation Brands outlined its guidance for fiscal 2022. The company estimates net sales growth of 7-9% for the beer segment. Operating income for the beer business is expected to increase 3-5%. Net sales and operating income for the wine and spirits business are estimated to decline 22-24% and 23-25%, respectively. Organic sales for this segment are likely to grow 2-4%.

Further, the company expects interest expenses of $350-$360 million for fiscal 2022. Further, it anticipates a tax rate of nearly 22% and weighted average diluted shares outstanding of 196 million. The company expects no share repurchases for fiscal 2022.

Driven by the aforementioned factors, Constellation Brands estimates earnings per share of $6.90-$7.20, down from $10.23 reported in fiscal 2021. On a comparable basis, excluding the Canopy business, earnings per share are expected to be $9.95-$10.25.

Moreover, the company expects to generate an operating cash flow of $2.4-$2.6 billion for fiscal 2022, while free cash flow is estimated to be $1.4-$1.5 billion. Constellation Brands plans to incur capital expenditures of $1-$1.1 billion in fiscal 2022.

Other Stocks to Consider

The Estee Lauder Companies EL has a long-term earnings growth rate of 10.7% and currently, a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Compania Cervecerias Unidas, S.A. CCU, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 10.2%.

The Hain Celestial Group HAIN — another Zacks Rank #2 stock — delivered an earnings surprise of 26.7%, on average, over the trailing four quarters.

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