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Check Out Constellation Brands’ Fiscal 3Q17 Segment Margins

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Gross margin expands

Constellation Brands’ (STZ) gross margin rose to 49.2% in fiscal 3Q17[1. Fiscal 3Q17 ended on November 30, 2016] compared to 44.7% in fiscal 3Q16. This growth in gross margins was due to lower costs of products sold in the Beer segment as well as the Wine and Spirits segments, increased beer pricing in select markets, and the impact of favorable adjustments compared to fiscal 3Q16.

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Operating margin in Q3

In fiscal 3Q17, Constellation Brands’ operating margin rose on an overall basis to 49.2% from 44.7% in fiscal 3Q16. This rise was mainly due to favorable adjustments. However, Beer segment and Wine and Spirits segment delivered lower operating margins in fiscal 3Q17.

The Beer segment’s operating margin dropped 30 basis points to 34.8% in fiscal 3Q17 due to higher marketing expenses and consolidation of the Ballast Point craft business. The operating margin of the Wine and Spirits segment fell 20 basis points to 27.3% in fiscal 3Q17 due to higher selling, general, and administrative expenses and higher marketing expenses.

Anheuser-Busch InBev’s (BUD) operating margin in 3Q16 fell to 27.7% from 32.5% in 3Q15. A rise in sales and marketing expenses and lower sales impacted the company’s 3Q16 operating margin. The operating margin of Molson Coors Brewing (TAP) was 30.5% in 3Q16 compared to 0.8% in 3Q15. This increase was mainly due to a favorable comparison with 3Q15, which was adversely impacted by impairment charges related to the company’s Europe segment.

To enhance its margins, Constellation Brands is focusing on high-margin, premium brands across its beer, wine, and spirits portfolio. The acquisitions of the Meiomi and The Prisoner Wine brands and the Ballast Point craft brewery were all part of the company’s premiumization strategy. Also, the company completed the sale of its Canadian wine business in the third quarter in order to focus on premium, luxury brands.

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

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