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Does Constellation Brands’ Raised ’18 View Signal a Solid Q4?

Zacks

Robust earnings history and sturdy brand portfolio have been the key pillars of strength for Constellation Brands, Inc. STZ. This world’s leading wine company has kept the trend alive in its recently reported third-quarter fiscal 2018, which marked the 13th straight quarter of an earnings beat.

Results were driven by efforts toward increasing strong consumer demand, contributions from acquisitions and solid growth momentum in the company's beer business. Also, the quarter witnessed significant market share gains, margin expansion, strong free cash flow and solid execution. This along with the strength in the beer business led the company to raise earnings outlook for fiscal 2018.

Management also raised fiscal 2018 operating income target for the beer segment while retained the sales forecast. For the wine and spirits business, the company anticipates results to be at the lower end of the sales and operating income guidance ranges.

FY18 Outlook

Management now envisions adjusted earnings in a band of $8.40-$8.50 per share for fiscal 2018 compared with previous range of $8.25-$8.40. The Zacks Consensus Estimate for the fiscal is currently pegged at $8.53, up 10 cents in the last seven days. On a reported basis, earnings are anticipated in the range of $8.50-$8.60, up from $7.90-$8.05 projected earlier.

For the beer segment, the company raised operating income target in a band of 18-19% for the fiscal from 17-19% guided earlier. Net sales for this segment are expected to improve in the 9-11% range.

Meanwhile, management continues to expect sales at the wine and spirits’ segment to decline 4-6%. However, it projects the operating income to remain flat. These projections include the impact from the sale of its Canadian wine business and benefits from the High West, Charles Smith and Prisoner buyouts. Excluding these impacts, net sales for the wine and spirits business are expected to increase in the range of the 4-6% while operating income is anticipated to improve 5-7% in fiscal 2018. The company now expects results for the wine and spirits business to be at the lower end of the above guidance ranges.

Other factors influencing the company’s guidance include an interest expense expectation of $330-$340 million, an approximate tax rate of 20% and weighted average diluted shares outstanding of approximately 201 million.

Furthermore, Constellation Brands’ anticipates capital expenditures of $1.175-$1.275 billion in fiscal 2018 with roughly $1.0 billion estimated for expansion of Mexico beer operations. While the company targets free cash flow in the range of $725-$825 million, operating cash flow is projected to be in the $1.9-$2.1 billion band.

Stock Performance

This Zacks Rank #2 (Buy) stock has surged 46.8% in the past year, outperforming the industry’s growth of 22.5% and S&P 500’s gain of 21.2%.



Interested in Alcohol Stocks, Check These

Some other top-ranked stocks from the same industry are Brown-Forman Corporation BF.B, The Boston Beer Company, Inc. SAM and Craft Brew Alliance, Inc. BREW. While Brown-Forman and Boston Beer sport a Zacks Rank #1 (Strong Buy), Craft Brew carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brown-Forman delivered an average positive earnings surprise of 7% in the last four quarters. Shares have rallied 51.5% in the past year.

Boston Beer with a long-term earnings growth rate of 5% has delivered an average positive earnings surprise of 63.4% in the trailing four quarters.

Craft Brew pulled off an average positive earnings surprise of 250.2% in the last four quarters. Further, the stock has gained 27.1% in the past year.

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