USA: Constellation Brands reports better-than-expected Q4 sales and earnings

Shares of Constellation Brands Inc. STZ rose more than 2% on Apr 7, following better-than-expected sales and earnings in fourth-quarter fiscal 2022. The metrics also improved year over year. Results benefited from continued growth in the beer business and robust consumer demand.

Constellation Brands posted fiscal fourth-quarter comparable earnings of $2.37 per share, which advanced 30% year over year and surpassed the Zacks Consensus Estimate of $2.15. On a reported basis, the company’s earnings per share were $2.07, up 6% year over year. Excluding the impacts of Canopy Growth, it posted comparable earnings of $2.55 per share, up 32% from the year-ago period.

Net sales rose 8% to $2,103 million and surpassed the Zacks Consensus Estimate of $2,016 million. Organic net sales were up 11% year over year. Organic sales benefited from robust growth in the beer business, and organic sales growth in the wine and spirits business.

The company’s beer business reported sales growth of 14% to $1,565.7 million, including a 9.9% increase in shipment volumes and a 9.8% depletion of volume growth. Sales growth for the segment was driven by robust consumer demand for its iconic brands. Depletion volume benefited from the continued strength in Modelo Especial and Corona Extra.

Depletion volume increased 17% for Modelo Especial and 9% for Corona Extra. Modelo Especial became the No. 1 beer brand, strengthening its leadership position in the high-end category. It was also the largest share gainer in dollar sales in the U.S. beer category in IRI channels. Meanwhile, Corona Extra was the second leading import share gainer and ranked the third brand in the high-end IRI channels.

Sales in the wine and spirits segment decreased 7% to $536.8 million in the fiscal fourth quarter. Organic net sales for the segment rose 5%. Organic net sales growth was driven by gains from higher consumer takeaway. Solid performances by The Prisoner Brand Family, Kim Crawford and Meiomi were the key growth drivers.

Shipment volume in the wine and spirits business slumped 18.1%, whereas depletions declined 6.6%. Organic shipment volume fell 2.5%. In the United States, the shipment volume plunged 19.5%, while the organic shipment was down 2.8% from the last year.

Shares of this Zacks Rank #3 (Hold) company have rallied 4.8% in a year compared with the industry’s growth of 5.8%.

Adjusted gross profit grew 6% year over year to $1,081.5 million. Meanwhile, the adjusted gross profit margin contracted 60 basis point (bp) to 51.4%.

Constellation Brands' comparable operating income rose 17% to $658.9 million, whereas the comparable operating margin expanded 240 bps to 31.3%.

The operating margin in the beer segment expanded 240 bps to 39.2% due to higher cost of goods sold (“COGS”), which offset favorable pricing, positive impacts from foreign currency, and reduced marketing and SG&A spend.

The wine and spirits segment’s operating margin expanded 280 bps to 22.7%, owing to the adverse impacts of foreign currency, rising SG&A expanses, and higher COGS stemming from elevated freight and warehousing costs. On the flip side, gains from favorable price and mix, as well as the timing of marketing spend, remained upsides.

As of Feb 28, 2022, Constellation Brands’ cash and cash equivalent were $199.4 million, with long-term debt (excluding current maturities) of $9,488.2 million and total shareholders’ equity (excluding non-controlling interest) of $12,047.8 million. The company generated an operating cash flow of $2,705.4 million and an adjusted free cash flow of $1,678.6 million as of Feb 28, 2022.

On Apr 6, 2022, the company announced a quarterly dividend of 80 cents per share for Class A stock and 72 cents for Class B stock. The dividend is payable on May 19 to its shareholders of record as of May 5.

Backed by its strong quarterly results, Constellation Brands issued the fiscal 2023 view, which seems encouraging. The company now expects adjusted earnings of $11.20-$11.50 on a comparable basis (excluding canopy growth impacts) and $11.15-$11.45 on a reported basis. These suggest improvements from comparable earnings (excluding canopy growth impacts) of $10.99 and a reported loss of 22 cents recorded in the prior year.

Net sales are likely to grow 7-9% for the beer segment. Operating income is anticipated to increase 2-4%. The company expects net sales for the wine and spirits business to decline 1-3% while operating income is envisioned to grow 4-6%.

The company predicts interest expenses of $350-$360 million for fiscal 2023. Constellation Brands forecasts operating cash flow of $2.6-$2.8 billion for fiscal 2023, whereas free cash flow is estimated to be $1.3-$1.4 billion. The company plans to incur a capital expenditure of $1.3-$1.4 billion in fiscal 2023, including $1.2 million targeted for the Mexican beer operations’ expansion activities.

The company outlined plans for incremental capacity expansion in Mexico to support growth in its high-end Mexican beer portfolio. It anticipates a total capital expenditure of $5-$5.5 billion for the beer business between fiscal 2023 and 2026. The latest expansion will support an additional capacity of 25-30 million hectolitres and includes the construction of a brewery in Southeast Mexico in Veracruz. It also targets continued expansion and optimization of the existing Nava and Obregon breweries.

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