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Constellation Brands Stock Soars on Q1 Earnings Results

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Q1 results beat expectations

Constellation Brands (STZ) surged 5.6% as of 2:31 PM today after the company crushed analysts’ earnings forecasts for the first quarter of fiscal 2020, which ended on May 31.

Constellation Brands’ adjusted EPS of $2.21 in the first quarter significantly exceeded analysts’ estimate of $2.04. The company’s first-quarter adjusted EPS grew only 0.5% on a year-over-year basis. Excluding equity losses associated with the company’s investment in Canopy Growth Corporation (CGC), Constellation Brands’ EPS grew 9.0% to $2.40. Canopy Growth reported unimpressive fourth-quarter results on June 21.

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Constellation Brands’ sales grew 2.4% to $2.10 billion in the first quarter, driven by strong demand for the company’s popular beer brands, Modelo Especial and Corona Premier, partially offset by lower and wine and spirits sales. The company’s first-quarter sales came in ahead of analysts’ estimate of $2.07 billion.

Constellation Brands expects its previously announced divestiture of 30 low-growth wine and spirit brands to E. & J. Gallo Winery to be completed in the second half of fiscal 2020. The company had expected to complete the transaction by the end of the first quarter of fiscal 2020.

Constellation Brands intends to focus on premium beer, wine, and spirits brands, which should help it drive higher profitability. Within the wine and spirits business, the company will now drive the growth of its Power brands, which includes brands like Meiomi, Kim Crawford, and The Prisoner.

Updated outlook

Constellation Brands continues to see its Beer segment’s net sales and operating income growth in the range of 7%–9% in fiscal 2020. Assuming the completion of the divestiture of a portion of the wine and spirits portfolio in the second half of fiscal 2020, Constellation Brands expects its Wine and Spirits segment’s net sales to decline 20% to 25% compared to the previous outlook of a decline of 25% to 30%. The company now expects operating income from the Wine and Spirits segment to fall 25%–30% compared to the previous decline rate of 30%–35%.

Constellation Brands expects its fiscal 2020 adjusted EPS in the range of $8.65–$8.95 compared to the previous forecast of $8.50–$8.80. This guidance excludes the impact of the company’s investment in Canopy Growth.

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