Constellation Brand Earnings: What to Watch Out For

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Maybe it’s time for investors to start getting excited about the booze space again. Constellation brands (NYSE: STZ), which saw strong growth in its core beer business last year, is expected to report quarterly results in a few days that will set the tone for its broader 2022 fiscal year. This report could show market share dynamics against competitors like Boston beer even as Constellation spends a lot on its long-term growth initiatives.

Let’s take a closer look at the next report on Wednesday.

Image source: Getty Images.

Growth and market share

Constellation Brands’ pandemic year has been rich in good news for shareholders. Its portfolio of premium imported beers (like Corona and Modelo) has remained popular with consumers who have diverted their drinking habits from restaurants and bars. The company’s double-digit sales increase kept it above beer giants like Anheuser Busch InBev, but behind industry leader Boston Beer.

Investors hope Constellation can continue to gain stakes in the beer business by focusing on the high-end import category. We’ll also get a key health update from its hard salt brand, which recently launched new flavors with the goal of pushing market share above the current 6% rate.

Running the wine business

Investors have been waiting for solid data for several quarters showing Constellation’s wine business is on the mend, and this week may finally bring that good news. Excluding its recently sold brands, this part of the portfolio grew by 5% in the last quarter. CEO Bill Newlands and his team are aiming for faster earnings now that they’ve done away with underperforming products.

STZ operating margin graph (TTM)

STZ operating margin (TTM) given by YCharts

Meanwhile, they are targeting profit margins above 30% of sales in the niche, compared to the staggering 41% the company enjoys in its beer segment. Shareholders are expected to see encouraging progress on this score in 2022 after the wine segment pushed down overall margins last year.

Update outlook

Constellation is investing resources in its Mexican brewery network today, and these investments are very likely to generate impressive returns over time. Capital is also flowing into the Canopy growth as the company lays the foundation for its cannabis drink portfolio. We will hear general comments on each of these long-term projects on Wednesday.

The most concrete measure of outlook is organic sales. Executives said in April they expected growth of between 2% and 4% for fiscal 2022, on top of last year’s strong result. Management believes that it can reach this aggressive target thanks to the growth in market share and a constant flow of new product launches and more practical packaging for brands like Modelo. The bullish thesis for the stock is also based on Constellation raising its prices faster than inflation, which should be easy in this selling environment given the focus on premium drinks.

The company could remain cautious in its outlook update on Wednesday as much of the year is ahead and there will likely be big changes in consumer spending habits in the immediate wake of the pandemic. But Constellation Brands can still reasonably aim for a 12th consecutive year of growth for its beer business and an overall improvement in margins in fiscal 2022.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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