Constellation Brands' stock up after profit beat offsets soft sales and guidance

By Ciara Linnane

Stock reverses early losses to trade higher

Constellation Brands Inc.'s stock rose 4% Friday, after the wine and spirits distributor posted better-than-expected profit for its fiscal third quarter, though sales fell short and the company lowered its full-year guidance.

The company posted net income of $509.1 million. or $2.76 a share, for the quarter to Nov. 30, up from $467.7 million, or $2.52 a share, in the year-earlier period. Adjusted per-share earnings came to $3.19, ahead of the $3.01 FactSet consensus.

Sales rose to $2.471 billion from $2.437 billion a year ago, below the $2.538 billion FactSet consensus.

CEO Bill Newlands said Modelo Especial delivered double-digit volume growth and retained its position as number one beer brand in the U.S. by dollar sales, while Corona Extra and Pacifico were top 10 share gainers in the U.S. beer category.

Modelo Especial replaced Anheuser-Busch's Bud Light (BUD) as the best-selling beer in the U.S. in 2023, partly due to the backlash against Bud Light that began in April in response to its partnership with trans influencer Dylan Mulvaney.

The performance in the beer segment, "has reinforced our conviction in our Fiscal 2024 enterprise outlook, despite an adjustment to our Wine and Spirits Business guidance due to near-term headwinds in the wine market," Newlands said in a statement.

On a call with analysts, Newlands said Constellation led beer sales in the U.S. around the Thanksgiving holiday and saw accelerating momentum in the last week of November. But the wine and spirits business fell in line with the broader industry, causing the company to lower its full-year guidance.

The company is now expecting fiscal 2024 EPS of $9.15 to $9.35, down from prior guidance of $9.60 to $9.60.

The company's beer business posted a 4% increase in sales in the quarter, driven by a 3.4% increase in shipments. Depletion volume, a metric that measures the number of cases sold by distributors to retailers, rose 8.2%. after rising 7.9% in the second quarter.

In the wine and spirits segment, sales fell 8%, as shipments were down 11.6%. Depletions fell 10% in the period, after falling 7.8% in the second quarter.

The wine and spirits business is expected to see fiscal 2024 organic sales fall 7% to 9% and operating income to fall 6% to 8%, mostly due to a slowing in the market and U.S. wholesale underperformance.

"As noted in our recent investor day, we continue to believe that over the medium term, our wine and spirits business should accelerate its net sales growth to one to 3% and improve operating margins to 25 to 26%, supported by the significant transformation undertaken over the last few years to better align our portfolio with broader consumer led premiumization trends, expand our omni channel capabilities and extend into targeted international markets," Newlands told analysts, according to a FactSet transcript.

The stock has gained 21% in the last 12 months, while the S&P 500 has gained 23%.

-Ciara Linnane

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01-05-24 1119ET

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