Constellation Brands stock analysis: mixed Q2 at drink firm
The beer, wine and spirits giant missed EPS predictions, despite high revenue
The American beverage producer Constellation Brands announced its second-quarter results on 6 October 2021, which showed earnings per share (EPS) that were lower than analysts expected, but net sales up at $2.37bn (€2.7bn, £1.9bn).
Constellation Brands is a Fortune 500 company that invests in the beer, wine and spirits markets. The many products they have bought into include Corona Extra, Modelo Especial, Casa Noble Tequila, Kim Crawford Wine and SVEDKA Vodka.
The results were mixed for Constellation Brands as it revealed its quarterly EPS as $2.38, missing The Wall Street Journal’s estimate of $2.78. It also missed the $2.77 consensus prediction from 19 analysts, according to Markets Insider.
However, Constellation reported net sales of $2.37bn – an increase of 4.89% in the past three months ending 30 August 2021, compared to the same period last year. It was also above analysts’ predictions of $2.30bn, according to Markets Insider.
Constellation’s share price has fallen by 2.3% since the beginning of the year, while the S&P 500 has gained 15.7%. But will Constellation Brands stock go up? Before we look at the Constellation Brands stock analysis, let’s see the reasons behind these mixed results.
What's going right and wrong for Constellation
The second-quarter results reveal Canopy Growth Corp as the troublemaker behind the American producer’s mixed results. In 2017, Constellation bought a slice of Canopy, a Canadian company that invests in cannabis-based product and beverage brands. It increased its ownership to 38.6% in May 2020.
The cannabis company was responsible for $224m net loss at Constellation since it started investing in 2017 and a $0.13 equity loss this quarter in Constellation’s EPS.
Despite losses from Canopy, the beer brands have been going strong with net sales at $1.8bn, which has increased by over 200m compared to the same quarter last year. Corona Extra and Modelo Especial were highlighted as Constellation hero products. Modelo saw a 16% growth in volume for “depletions” – the term used in the beer industry for the rate at which beer already shipped from a brewer leaves the distributor’s warehouse and is sold to retailers.
In IRI (Information Resources Incorporated) channels, a dashboard that tracks the performance of consumer-packaged goods in major industries, Constellation's Beer Business significantly outpaced the total beer category. It was also the number one dollar share gainer, adding 1.3 market share points in this quarter.
Bill Newlands, president and chief executive officer at Constellation Brands, said: "The strong performance of our core Beer Business, driven by robust consumer demand for our iconic brands, gives us confidence to increase our guidance for the year.”
Diageo, the London, UK-based alcoholic beverage company, is one of Constellation’s competitors and reported its preliminary annual reports for the year ending 30 June 2021. It saw net sales hit £12.7bn over the year, while Constellation’s net sales over the past six months ending 31 August 2021 only hit $4.4bn.
Diageo also highlighted that there was a high consumer demand for spirits in North America, while Constellation Brands expects their wine and spirits sales to decrease between 22% and 24%.
Constellation stock analysis
The markets responded negatively to the results, with the Constellation Brands’ share price falling overnight and throughout yesterday. It closed on 5 October at $213.06 and closed at $211.62 on the following day, after the quarterly results were announced.
Despite a recent slump over the past four months, Constellation Brands’ stock price is much higher compared to last year. On 28 October 2020, their share price was $165.02 – $46.6 lower compared to 6 October 2021.
The current share price is also higher than pre-pandemic levels. Constellation Brands’ stock price on 7 October 2019 was $188.61 – $23.01 lower compared to 6 October this year.
Constellation Brands: Buy or sell?
Looking forward, Entrepreneur Europe reported that share-price action for Constellation may be muted over the next couple of months, but it should eventually set a new all-time high alongside revenue.
Constellation also revealed it has made progress towards its goal of returning $5bn to shareholders through dividends and repurchases, which is powered by their cash flow.
Garth Hankinson, executive vice president and chief financial officer at Constellation Brands, said: “We executed a significant number of share repurchases during the second quarter as we believe our stock is undervalued at current levels. This represents progress towards achieving our goal of returning $5bn in value to shareholders through dividends and share repurchases.”
The company is currently on track to increase its dividend by the end of the year, according to Entrepreneur Europe. Constellation’s board declared a quarterly cash dividend of $0.76 per share of Class A Common Stock and $0.69 per share of Class B Common Stock.
When it came to predictions, Constellation Brands said its EPS will range from $10.15–$10.45, excluding Canopy. As Constellation has failed to hit EPS analyst predictions, a recent article from Nasdaq said: “It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead.”
It depends. Constellation currently predicts its EPS at the end of this fiscal year will range from $10.15–$10.45, with Canopy excluded. However, Entrepreneur Europe predicts its share price will be muted over the next couple of months but will eventually reach an all-time high.
On the other hand, experts can also be wrong, as they were with the EPS. You should remember never to invest more than you can afford to lose.
It might be. Entrepreneur Europe predicts long-term growth and Nasdaq says it will perform in line with the market in the near future. Predictions can also be wrong, so you need to carry out your own research on Constellation before buying shares.
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