Constellation Brands Impresses with Stellar 1Q Earnings



Earnings surpass estimates

Constellation Brands’ (STZ) earnings in fiscal 1Q18[1. Fiscal 1Q18 ended on May 31, 2017], excluding one-time items, exceeded analysts’ earnings estimates for the 11th consecutive quarter. Constellation Brands delivered adjusted EPS (earnings per share) of $2.34, handily beating the consensus Wall Street EPS estimate of $1.98.

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Strong earnings growth

Constellation Brands’ adjusted EPS in fiscal 1Q18 rose 52% on a year-over-year basis. Such impressive growth was driven by higher sales and a rise in the adjusted operating margin. We’ll discuss the company’s sales in part three of this series and its margins in part six. The company’s fiscal 1Q18 adjusted EPS excludes the impact of one-time items including a $86.8 million impairment charge related to the trademarks associated with the Ballast Point business.

The company’s adjusted EPS growth in fiscal 1Q18 was higher than the 24.4% growth in fiscal 4Q17 and the 22.2% growth in fiscal 1Q17.

Constellation Brands’ adjusted EPS in fiscal 1Q18 also rose due to a decline in the comparable effective tax rate to 19.4% compared to 31.6% in fiscal 1Q17. This decline in the effective tax rate resulted from the benefit of reinvesting foreign earnings under APB 23 and the adoption of an accounting standard (ASU 2016 09) related to excess tax benefits from stock-based payments.

Peer Anheuser-Busch InBev (BUD) reported normalized EPS of $0.74 compared to $0.51 in 1Q16. The improvement in Anheuser-Busch InBev’s earnings was driven by its newly combined operations with SABMiller. The company’s earnings were also favorably impacted by the gains in its mark-to-market adjustments to its share-based payment programs.

Earnings guidance raised

Following a strong first quarter, Constellation Brands raised its earnings guidance for fiscal 2018. The company now expects its adjusted EPS for fiscal 2018 in the $7.90 to $8.10 range. The company previously expected its fiscal 2018 adjusted EPS in the $7.70 to $8.00 range. Constellation Brands delivered adjusted EPS of $6.76 in fiscal 2017.

We’ll discuss the company’s fiscal 1Q18 sales in the next part of this series.


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