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Constellation Brands’ Strong Beer Business Drove Q1 Earnings

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Beer segment’s sales in Q1

Constellation Brands’ (STZ) top-line growth in the first quarter of fiscal 2020 (which ended on May 31) was yet again driven by strength in the company’s beer portfolio. Constellation Brands’ sales grew 2.4% to $2.10 billion in fiscal 2020’s first quarter, driven by a 7.4% rise in Beer segment sales to $1.48 billion. Constellation Brands’ Wine and Spirits segment sales remained a drag on the company’s overall top-line growth and declined 7.8% to $619.8 million in the first quarter.

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The Beer segment’s sales growth was driven by increased volumes in the company’s Mexican beer portfolio and higher pricing in select markets. The Beer segment’s shipment volumes grew 5.4% in the first quarter. Continued consumer demand, aggressive marketing efforts, and innovation supported the Beer segment’s performance.

According to Constellation Brands, the Beer segment’s shipment volumes accelerated in the first quarter in advance of proposed tariffs on imports into the US from Mexico. Also, a shipment volume timing benefit at the end of fiscal 2019 didn’t reverse as expected. Constellation Brands expects the shipment timing benefit to reverse during the remainder of this fiscal year.

Both Modelo Especial and Corona Premier brands recorded double-digit depletion growth in the quarter. Depletion represents distributor shipments of these brands to retail customers. The company also saw strength in its Corona Refresca brand, which it rolled out nationally in early May. Overall, the Beer segment’s depletion volume growth was 6.6% in the first quarter.

Segment profitability

Constellation Brands’ Beer segment’s operating income grew 11.7% to $580.6 million in the first quarter. The Beer segment’s operating margin expanded by 150 basis points to 39.3% due to higher pricing and favorable foreign currency movements. However, the company’s operating margin was hurt by increased transportation and logistics costs.

Constellation Brands kept its guidance for the Beer segment intact and expects the segment’s net sales and operating income growth in the 7%–9% range in fiscal 2020. The company continues to focus on expanding in the high end of the US beer market through innovation in the existing portfolio, expanding its distribution of key brands, and expanding its production capacity.

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