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Constellation Brands 2Q17 Margins: What Do Analysts Expect?

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Margin expansion

Constellation Brands (STZ) delivered impressive expansion in its margins in fiscal 1Q17, which ended on May 31, 2016. With its fiscal 2Q17 results slated to release on October 5, we’ll discuss whether analysts expect the company’s margin expansion to continue in the second quarter.

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Impressive improvement in 1Q17

Constellation Brands’ gross margin expanded to 47.1% in fiscal 1Q17 from 45.2% in fiscal 1Q16. This significant improvement in the company’s gross margin was due to higher beer pricing in select markets, higher volumes of its Mexican beer brands, favorable foreign currency transactional benefits in the Mexican beer portfolio, and the acquisition of Meiomi and Prisoner wine brands.

The company’s operating margin in fiscal 1Q17 rose to 29.5% from 26.2% in fiscal 1Q16. Its selling, general, and administrative expenses fell as a percentage of sales due to strong sales growth.

Analysts expect higher margins

For fiscal 2Q17, which ended on August 31, 2016, analysts expect Constellation Brands’ gross margin to rise to 46.3% from 44.7% in 2Q16. Analysts expect the company’s operating margin to grow to 29.6% in 2Q17 from 27.7% in 2Q16. The improvement is expected to be driven by strong beer volumes and the company’s premiumization strategy, which involves a focus on higher-margin beer, wine, and spirits products. The First Trust Consumer Staples AlphaDEX Fund (FXG) has 3.5% exposure to Constellation Brands.

Constellation Brands’ peers Anheuser-Busch InBev (BUD) and Molson Coors Brewing (TAP) delivered operating margins of 28.8% and 27.2%, respectively, in the comparable second quarter.

In the next part, we’ll look at analysts’ earnings expectations.

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