Why Constellation Brands (STZ) Seems Well Placed Amid Cost Issues

Constellation Brands Inc. STZ is well positioned for long term growth due to its strong premiumisation strategy. The strength of the beer industry, driven by growth in shipping and exhaustion volumes, has been the primary driver over the years. The company saw strong consumer demand for its iconic brands, which contributed to the quarterly results.

Despite persistent supply chain issues, Constellation Brands saw robust sales growth in the second quarter of fiscal 2022. Net sales improved 5% and exceeded Zacks’ consensus estimate. Organic net sales were up 14% year over year. Sales benefited from double-digit revenue growth in the beer business and organic sales growth in the wines and spirits business.

Shares of Constellation brands have risen 6.4% in the past three months compared to an industry decline of 0.2%.

Over the past 30 days, Zacks Company Rank # 4 (Sell) estimates for fiscal year 2022 earnings per share have remained unchanged. For fiscal 2022, its earnings estimate is set at $ 10.00 per share, which suggests growth of 0.3% from the figure released last year.

Image source: Zacks Investment Research

Here’s why Constellation brands should keep their momentum going

Constellation Brands is expected to maintain its strong performance in the beer sector. Sales of the company’s beer business grew 14% in the second fiscal quarter, including an 11.7% increase in shipping volumes and a 7.3% growth in depletion volumes. The segment’s sales growth was driven by strong consumer demand for its iconic brands.

Depletion volume benefited from the continued strength of Modelo Especial and Corona Extra. The exhaustion volume increased by 16% for the Modelo Especial and by almost 5% for the Corona Extra. Modelo Especial has become the No. 1 beer brand, thus strengthening its leadership position in the high-end category. It was also the biggest gain in dollar sales share in the American beer category in IRI channels. Meanwhile, Corona Extra was # 2 for stock winners and # 3 for premium IRI channels.

Constellation Brands remains keen to boost the performance of the wines & spirits business. The company’s wine and spirits premiumization strategy is going well, as evidenced by the accelerated growth of Power Brands in the second quarter of fiscal 2022. The company’s high-end power brands including Kim Crawford, Meiomi and The Prisoner Brand Family, have been the key to growth. Drivers. This, along with gains from consumer-focused innovation initiatives, helped the segment’s organic sales, which improved 15% in the fiscal second quarter.

The company invests to fuel the growth of its powerful brands through innovation, capitalizing on consumer priorities and trends, with successful product launches. It is slated for impactful product launches in the third quarter of fiscal 2022, including Woodbridge Wine Seltzers, Woodbridge Sparkling Infusions and Woodbridge 3 liter boxed wine of Chardonnay, Cabernet Sauvignon, Pinot Grigio and Pinot Noir, as well as a significant expansion of SVEDKA ready-to-drink cocktails into other markets in the United States. For fiscal 2022, organic sales in the wines and spirits segment are expected to grow by 2-4%.

Building on strong beer results and ongoing share buyback activities, Constellation Brands delivered strong earnings guidance for fiscal 2022. The company expects net sales growth of 9 to 11% for the beer segment. Beer segment operating profit is expected to increase 4-6%. Beer’s strong commercial orientation is supported by the strong performance of its core beer portfolio.

The company expects interest expense of $ 355 million to $ 365 million for fiscal 2022. It expects a reported tax rate of 83% and a comparable tax rate of 20%, excluding the impact on stock earnings from Canopy. On a comparable basis, excluding the Canopy business, earnings per share are expected to be between $ 10.15 and $ 10.45. The company posted comparable earnings per share of $ 10.44, excluding Canopy Growth in fiscal 2021.

Obstacles to overcome

Constellation Brands continues to face headwinds from rising cost of goods sold (COGS), marketing investments and SG&A expenses, which hurt margins. The increase in COGS is primarily due to obsolescence costs associated with excess seltzer water inventory due to a downturn in the overall grade in the United States. In addition, the operating margin of the sweet wines and spirits segment due to bulk sales of smoked wine, which had a dilutive effect on the margin, and higher selling, administrative and marketing costs, as well as the rising cost of goods sold, are obstacles.

Actions to watch

We have highlighted some better-ranked stocks from the broader consumer staples space, namely Pop ingredients MGPI, Diageo DEO and Hershey HSY.

MGP Ingredients currently sports a Rank 1 of Zacks (strong buy). It has a surprise earnings over the last four quarters of 117.6% on average. MGPI stock has gained 28% in the past three months. You can see The full list of today’s Zacks # 1 Rank stocks here.

Zacks ‘consensus estimate for MGPI Ingredients’ current year sales and earnings per share suggests growth of 55.5% and 61.4%, respectively, from figures released last year.

Diageo currently has a Zacks Rank # 2 (Buy). The company forecast a long-term profit growth rate of 9.1%. WD shares have gained 8.3% in the past three months.

Zacks’ consensus estimate for Diageo sales for the current year suggests year-over-year growth of 30.7%. The consensus mark for earnings per share shows growth of 13.6% over the figure released last year.

Hershey currently wears a Zacks Rank # 2. The company has a surprise earnings for the last four quarters of 4.4% on average. The company’s shares have gained 2.3% in the past three months.

Zacks’ consensus estimate for Hershey’s current year sales and earnings per share suggests growth of 8.9% and 12.6%, respectively, from figures released last year. HSY has an expected long-term earnings growth rate of 8.5%.

5 actions in the process of doubling

Each has been handpicked by a Zacks expert as the # 1 favorite stock to earn + 100% or more in 2021. Previous recommendations have climbed + 143.0%, + 175.9%, +498 , 3% and + 673.0%.

Most of the stock in this report is flying under Wall Street’s radar, which provides a great opportunity to get into the ground floor.

Today, discover these 5 potential circuits >>

Click to get this free report

Hershey Company The (HSY): Free Stock Analysis Report

Diageo plc (DEO): Free Stock Analysis Report

Constellation Brands Inc (STZ): Free Stock Analysis Report

MGP Ingredients, Inc. (MGPI): Free Inventory Analysis Report

To read this article on Zacks.com, click here.

Zacks investment research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link

About Alex S. Crone

Check Also

Root Brands collaboration with the International Science Nutrition Society

NASHVILLE, Tenn., August 8, 2022 /PRNewswire/ — The Root Brands has partnered with the International …