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Constellation Brands’ Strong Fiscal 3Q17 Earnings: Key Drivers

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Jan. 9 2017, Published 2:01 p.m. ET

Earnings beat expectations

Constellation Brands (STZ) delivered impressive earnings yet again, exceeding analysts’ expectations for the ninth straight quarter in fiscal 3Q17, which ended on November 30, 2016. The company delivered adjusted EPS (earnings per share) of $1.96 in fiscal 3Q17, exceeding the consensus Wall Street analysts’ estimate of $1.72.

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Earnings drivers

Constellation Brands’ adjusted EPS in fiscal 3Q17 rose 38% on a year-over-year basis. This growth resulted from higher sales and better margins. Also, Constellation Brands’ earnings in fiscal 3Q17 benefitted from a lower comparable effective tax rate of 16.4% compared to 32.3% in fiscal 3Q16. The lower effective tax rate was due to the company’s assertion that part of its foreign earnings will be indefinitely reinvested and be taxed at the lower applicable foreign tax rates rather than the higher US tax rate.

Constellation Brands’ earnings growth in the third quarter was better than Anheuser-Busch InBev (BUD) and Molson Coors Brewing (TAP). In 3Q16, Anheuser-Busch InBev ‘s adjusted EPS declined to $0.83 from $1.02 in 3Q15. The lower earnings resulted from a fall in revenues due to weakness in the company’s Brazil business. Molson Coors Brewing’s 3Q16 adjusted EPS fell 26.4% to $1.03 due to lower revenue, higher brand investments, and forex headwinds.

Guidance raised

Constellation Brands raised its earnings outlook for full-year fiscal 2017 following impressive performance in the first three quarters of fiscal 2017. The company now expects its fiscal 2017 adjusted EPS in the $6.55–$6.65 range, up from the previous guidance of $6.30–$6.45. Including one-time items, the company’s diluted EPS in fiscal 2017 is forecasted in the $7.55–$7.65 range compared to the previously issued guidance range of $6.25–$6.40.

We’ll discuss the company’s sales growth in the next part of this series.

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