Constellation Brands profit tops estimates and company backs guidance, offsetting slight sales miss

By Ciara Linnane

Company is still expecting fiscal 2025 sales to grow 6% to 7%

Constellation Brands Inc.'s stock (STZ) was flat on Wednesday, after the alcoholic-beverages company posted a bigger-than-expected profit for its fiscal first quarter and backed its guidance, as sales fell slightly short of estimates.

CFRA analysts upgraded the stock to strong buy from hold and raised its 12-month stock price target to $335 from $270.

"We see STZ as the best way to play the theme of imported beer continuing to take market share from domestic brands in the U.S.," analyst Garrett Nelson wrote in a note to clients.

"Furthermore, STZ is poised to emerge from a major capex cycle in the coming quarters with the completion of its brewery expansion in Mexico, which should accelerate volume and free cash flow growth (and also cash returns to shareholders)," he wrote.

The company had net income of $877 million, or $4.78 a share, for the quarter to May 31, up from $135.9 million, or 74 cents a share, in the year-earlier period.

Adjusted per-share earnings came to $3.57, ahead of the $3.46 FactSet consensus.

Sales rose 6% to $2.662 billion, a whisker below the $2.669 billion FactSet consensus.

"Our Beer Business continued to achieve strong volume growth well above that of its category and total Beverage Alcohol," Chief Executive Bill Newlands said in prepared remarks.

The wine and spirits business, meanwhile, "is making good progress against the operational and commercial execution initiatives identified in Q4 of Fiscal '24 to support its trajectory toward this year's guidance," he added.

Beer sales rose 8%, as shipment volumes rose 7.6%. Depletion volume, a measure of how products are sold at the retail level, rose 6.5%. Sales of Modelo Especial were up about 11%, and the brand maintained its position as the leading U.S. beer brand by dollar sales.

Pacifico sales were up about 21% and the Modelo Chelada brands were up more than 5%.

In wine and spirits, sales fell 7%, driven by a 5.1% decline in shipment volumes. The business "continues to face challenging market conditions, primarily in the U.S. wholesale channel across most price segments in the wine category," said the statement.

The company is sticking with its guidance for fiscal 2025 adjusted EPS to range from $13.50 to $13.80 and for sales to grow 6% to 7%. It raised its guidance for reported EPS to a range of $14.63 to$14.93 from prior guidance of $13.40 to $13.70.

Beer sales are expected to grow 7% to 9% and wine and spirit sales are expected to be down 0.5% to up 0.5%.

The company is expecting to generate free cash flow of $1.4 billion to $1.5 billion.

Its earnings call is scheduled to start at 10.30 a.m. Eastern.

The stock has gained 7.1% in the year to date, while the S&P 500 has gained 15.5%.

-Ciara Linnane

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07-03-24 1027ET

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