The Beer Business Continues To Do The Heavy Lifting For Constellation Brands

On Wednesday, Corona beer maker Constellation Brands STZ reported its first quarter results, surpassing Wall Street profit estimates due to persistently strong demand for its beer brands which offset the weaker wines and spirit business amid a broader consumer industry slowdown in the U.S.

First Fiscal Quarter Highlights

For the quarter ended on May 31st, Constellation Brands reported net sales grew 5.8% YoY to  $2.66 billion, which came slightly below LSEG’s consensus estimate of $2.67 billion due to sluggish demand for its premium wines and spirits.

Beer sales rose 8% YoY to $2.3 billion, but the wine and spirits sales kept losing their fizz as they went down 7% YoY, bringing in revenue of $389 million.  

Its major revenue source, the beer business experienced a 6.4% depletion in volume growth, which is the rate at which products are sold, rising from last year’s comparable quarter and its 5.5% growth, along with a rise in operating margin of 260 basis points to 40.6%.

Rising costs of raw materials and packaging were amortized by aggressive price hikes, lowered marketing expenses and sales growth. With improved volumes and lowered costs, the beer business achieved high single-digit net sales growth and double-digit growth of its operating income.

With rising beer sales and expanded margins, Constellation brands recorded a big jump in profit that amounted to $877 million, or $4.78 a share, rising from last year’s comparable quarter when it made only $135.9 million, or 74 cents a share. The adjusted profit amounted to $3.57 per share, beating FactSet’s estimate of  $3.46 per share.

A lifted outlook

Constellation lifted its earnings outlook for the full fiscal year, as it now expected them to range between $14.63 and $14.93 a share, up from prior forecast range that was within $13.40 and $13.70 a share.

Constellation Brands had a good quarter

Constellation Brands kicked off its fiscal year on a good note but it was its core beer business that did the heavy lifting. The bigger picture is that Constellation expanded margins with higher sales along with its cost savings initiatives and good timing of its marketing investments. President and CEO Bill Newlands praised the outstanding performance of the beer business but also found the slugglish wine and spirits business to be making good progress with commercial and operational initiatives in place. Constellation Brands remains focused on driving sales and improving operational income. 

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