There has been a steady increase in demand for the popular beer brands of Constellation Brands, Inc. (NYSE: STZ) lately, including Modelo and Corona, driving revenue growth and boosting profitability. The trend is expected to have continued into the second quarter, and the results will be published on October 3, before markets open.
After hitting an all-time high in March this year, shares of the beverage giant retreated and have gone through a series of ups and downs since then. The stock has been maintaining an uptrend over the past month, reflecting positive investor sentiment in the runup to next week’s earnings. It has gained about 7% so far this year and looks on track to cross the $300 mark in the coming months. Considering STZ’s favorable valuation compared to its industry peers and the firm’s positive financial performance, it would be prudent to add it to the watchlist.
Estimates
When the company reports August-quarter results, Wall Street will be looking for a net income of $4.09 per share, representing an 11% year-over-year increase. The consensus sales estimate for the second quarter is $2.9 billion, compared to $2.84 billion in the same period last year. Interestingly, Constellation Brands has delivered better-than-expected quarterly earnings consistently for over a year.
The company has a good track record of innovating the business with a focus on aligning the portfolio with changing customer preferences. Of late, there has been a steady increase in beer shipments, reflecting the shift in people’s consumption behavior. That, combined with higher pricing, translated into a surge in the company’s earnings in recent quarters. Healthy cash flows enable it to effectively deploy capital and execute growth initiatives like international expansion and acquisition of new businesses.
Top Brewer
The broad portfolio and powerful brands give Constellation a clear edge over other alcohol companies. Earlier this year, the company acquired California-based winery Sea Smoke as part of boosting its higher-end wine portfolio. The deal is significant considering the ongoing consumer-led premiumization trends through its higher-end wine and spirit brands. The company is working to advance the wine and spirits business over the coming years but sees a 9-11% drop in operating margin for that business in the current fiscal year.
From Constellation Brands’ Q1 2025 earnings call:
“The tactical investments in the 11 brands that represent 75% of net sales and over 80% of volumes for our wine and spirits business in fiscal ’24 are now underway. And, we expect to see improvements in the select group of our most scaled offerings over the remainder of the year, ultimately underpinning the relatively stable net sales outlook for that business in fiscal ’25. However, these incremental investments did have a near-term impact on the operating income, which declined 25% in the first quarter.”
Q1 Outcome
In the first three months of fiscal 2025, sales rose 6% annually to $2.6 billion and came in line with estimates. An 8% increase in beer sales more than offset weakness in wine and spirits sales. Net income more than doubled year-over-year to $877 million or $4.78 per share during the three months.
This week, Constellation Brands’ stock mostly traded above its long-term average, gaining momentum ahead of the earnings. It traded higher on Friday afternoon, after opening the session around $255.
Conclusion
Constellation Brands’ success in the beverage industry is driven by its popular beer brands, like Modelo and Corona, that have seen steady demand growth, contributing to revenue expansion and improved profitability. With the upcoming Q2 results expected to reflect this positive trend, investors are eagerly anticipating the earnings report on October 3. The company’s strategic focus on innovation and adapting to changing consumer preferences, particularly in the beer segment, has been a key factor in its consistent quarterly earnings performance.
Additionally, Constellation’s recent acquisition of Sea Smoke winery underscores its commitment to enhancing its higher-end wine portfolio to align with evolving industry trends towards premiumization. While the wine and spirits business may see a temporary operating margin decline in the current fiscal year, the company’s long-term investments in its core brands are expected to support stable net sales growth in the future. Overall, Constellation Brands continues to demonstrate resilience and adaptability in a competitive market environment, making it a promising investment opportunity to watch.
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