Constellation Brands Inc has reported better-than-expected quarterly results and raised its full-year earnings forecast, boosted by strong demand for its Modelo Especial and Corona Premier beers.
The brewer has added more Mexican beers and, in recent quarters, craft beers to its portfolio to cater to rising demand from younger consumers, helping the company grow sales even as beer demand wanes across the globe.
Sales of the company's beers rose 7.4% to $1.48 billion in the first quarter ended May 31. Operating margin in the business increased 150 basis points to 39.3%, benefiting from favorable pricing and a stronger dollar.
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For the summer, the brewer has launched Corona Refresca, a malt beverage that comes in tropical flavors.
Expectations And Predictions
Constellation, which is shedding 30 of its lower-end wine brands after struggling to grow the business, now expects its "Power Brands" wine portfolio, which includes Kim Crawford and Meiomi, to perform well this year.
The company also predicted a slower sales decline for the segment this fiscal year, falling between 20% and 25%. The company had projected a 25% to 30% drop.
"[Constellation's] solid beer gross/op margin beat attests to the strength of STZ's collection of industry-leading Power Brands in the premium segment and strong cost discipline, supporting our confidence that STZ's growth engines are well intact," Wells Fargo analyst Bonnie Herzog said in a note.
Constellation raised its profit expectations for fiscal 2020, and now sees earnings per share on a comparable basis to be in the range of $8.65 to $8.95 from $8.50 to $8.80 earlier.
The brewer posted a net loss in the reported quarter, mainly due to equity losses in Canadian marijuana producer Canopy Growth.
Constellation was one of the early entrants to the growing cannabis industry in 2017 when it took a stake in Canopy Growth.
Share Earnings and Net Sales
Excluding one-time items, Constellation earned $2.21 per share, well below analysts' estimates of $2.04 per share, according to Refinitiv IBES data.
Overall, net sales rose 2.5% to $2.10 billion. Analysts had expected net sales of $2.07 billion.