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Constellation Brands’ 2Q17 Earnings: Potential Growth Drivers

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Earnings trend

Constellation Brands (STZ) exceeded analysts’ earnings expectations in eight of the past nine quarters. The beer, wine, and spirits producer will report its fiscal 2Q17 results on October 5. Fiscal 2Q17 ended on August 31, 2016. In fiscal 1Q17, Constellation Brands’ adjusted EPS (earnings per share), which excludes one-time items, was $1.54. Its 1Q17 adjusted EPS exceeded analysts’ consensus estimate of $1.52.

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What worked in 1Q17?

Constellation Brands’ 1Q17 adjusted EPS rose 22.2% on a year-over-year basis. Its impressive growth was primarily a result of a 14.7% rise in sales. As we discussed in Part 1 of this series, the company’s sales growth is being boosted by continued demand for its Mexican beer brands and the acquisitions of Ballast Point craft brewer as well as Meiomi and Prisoner wine brands. The company’s earnings also rose in 1Q17 due to higher margins.

The 22.2% growth in Constellation Brands’ 1Q17 adjusted EPS was higher than the 15.5% growth in 4Q16 and 17.8% increase in 1Q16. The iShares U.S. Consumer Goods ETF (IYK) has 1.3% exposure to Constellation Brands.

Earnings expectations

Analysts expect Constellation Brands’ adjusted EPS to rise ~5.6% to $1.65 in fiscal 2Q17. The growth in Constellation Brands’ earnings is expected to be driven by higher sales and improved margins. Alcoholic beverage peers Anheuser-Busch InBev (BUD) and Molson Coors Brewing (TAP) already reported their second quarter results. Anheuser-Busch reported a 12.4% fall in its 2Q16 adjusted EPS due to higher net finance costs and currency headwinds. Molson Coors’ 2Q16 adjusted EPS fell 21.3% due to lower revenue, higher brand investments, and currency headwinds.

For fiscal 2017, analysts expect Constellation Brands’ adjusted EPS to rise 15.7% to $6.28. Based on the guidance issued in June 2016, Constellation Brands expects its adjusted EPS to be $6.05–$6.35 in fiscal 2017 compared to $5.43 in fiscal 2016.

In the next part, we’ll discuss the movement in Constellation Brands’ stock price.

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