Constellation Brands Earnings Summary

Financial Summary

Constellation Brands (NYSE: STZ) reported strong earnings this morning, beating on top and bottom line estimates ($2.44BB actual vs $2.28BB expected rev. and $3.09 actual vs. $2.41 expected EPS). This marks the tenth straight EPS beat for the company, with an overall strong quarter leading to a 2.9% gain in the stock (as of 1:00PM ET).

Sales growth guidance of 7-9% over the near future remained steady.

M&A activity highlights from the quarter included the company’s successful sale of a portion of its Wine and Spirits portfolio to Gallo, including its Nobilo wine brand, with an expectation to close the sale of Paul Masson Grande Amber Brandy this month. Proceeds will go towards debt reduction and a new $2BB share repurchase program, with $1.9BB still remaining of the currently authorized share repurchase program.

The company remains committed to returning $5BB to shareholders through fiscal FY23 through buybacks and dividends. 

Brand Highlights

STZ’s beer portfolio accelerated to 12% depletion growth over the quarter, driven 3-4 points by inventory replenishment. Modelo Especial achieved 20% growth, taking the top share-gainer spot in IRI’s import segment, while Corona Premier and Pacifico grew over 20% and nearly 35% QoQ in IRI channels, respectively.

Corona Hard Seltzer continues to hold a strong footing in the increasingly-competitive world of hard-seltzer shelf space, keeping a steady figure QoQ of nearly 70% ACV in IRI channels, and holding the #4 hard seltzer market share spot while selling just one SKU. Corona Hard Seltzer plans to roll out a second variety pack in “early fiscal 2022” (i.e. late spring or summer 2021), with the new flavors being pineapple, strawberry, raspberry, and passionfruit. Management was questioned about “putting more lines in the water” regarding seltzer brands, and stated that they are committed to Corona Seltzer being their lead play and main driver of growth in the category. They hinted at a “couple of other things we might be doing which you’ll hear about going forward” in terms of Corona Seltzer innovation.

While management reiterated that the Corona Seltzer brand is where their focus lies, they stated that the Funky Buddha seltzer-line will be extended beyond its current region in the coming year.

In STZ’s wine and spirits portfolio, higher-end wine Power Brands (greater than $11 price points) outpaced the total category, with Kim Crawford, Meiomi, and Prisoner Brand all posting double-digit growth. Meiomi’s cabernet sauvignon is now the largest ultra-premium wine launch in IRI channels this year. 

Yesterday’s news regarding the Senate flipping to a democratic majority could bring immense upside to Canopy Growth Corp (NASDAQ: CGC) at a much faster pace than what was previously expected. The cannabis company is expanding through continued partnerships (e.g. BioSteel Sports Nutrition partnering with multiple NBA and NFL teams). A Martha Stewart-partnered CBD brand launched last quarter is the latest notable development in terms of strategic partnerships, and management emphasized more to come in efforts to drive consumer awareness. 

Notable Developments

STZ’s new Obregon facility, which will bring on 5 million hectoliters of new capacity and double hard seltzer production going into the next fiscal year, faces a slight delay in coming online due to the pandemic. 

STZ’s premiumization efforts furthered this quarter, with the Gallo deal divesting $11 and below wine & spirit brands. Constellation launched several new DTC sites, including the Prisoner Wine Company, and wine Power Brands in the e-commerce space are outpacing the overall category. $20 and up wine makes up 90% of DTC sales, and increased investments in DTC should further premiumization of the company’s portfolio and drive gross margins higher.