Dive Brief:
- Constellation Brands posted sales of $1.95 billion with a net income of $403 million for its first fiscal quarter of 2018, according to a company release. That’s up from $1.87 billion in sales and net income of $318 million in the same period a year ago.
- Adjusted earnings per share increased 52% during the last year to $2.34, well ahead of the $1.98 market estimate for the quarter. Constellation increased its earnings per share forecast for fiscal 2018 to $7.80 to $8.10.
- Strong Cinco de Mayo and Memorial Day sales boosted the company’s performance, according to president and CEO Rob Sands. Beer sales were up 8% while wine and spirits sales fell 4%. "Across the business, we're driving consumer demand for our exceptional portfolio of premium products while executing strong financial and operational performance," Sands said in a release.
Dive Insight:
Investors and industry observers were anxious to see if Constellation Brands would continue its stratospheric growth of late. The company did not disappoint, posting results that beat market estimates for the ninth straight quarter.
"We continue to think (Constellation) has significant momentum and are encouraged by this quarter's very strong underlying results and improved FY18 outlook," Bonnie Herzog, an anlayst with Wells Fargo Securities, said in a report. The company "remains our top beverage stock pick."
Leading growth for the company was its beer division, which includes Mexican brands Corona, Modelo Especial and Pacifico. Although overall beer consumption is down in the U.S., demand for imports from south of the border has increased among Hispanic as well as non-Hispanic consumers. According to research firm IRI, Mexican beer accounted for nearly 70% of imported beer sales in the U.S. during the past year.
In recent months, Constellation has faced uncertainty over what president and CEO Rob Sands has called “the Trump effect.” The president’s talk of building a border wall, threats of imposing tariffs and overall “unfortunate rhetoric,” as Sands put it, stoked fears in investors. Those concerns have mostly lifted as talk of tariffs and a border wall have cooled.
Constellation has been very successful marketing its Corona and Modelo brands to non-Hispanic consumers in the U.S. with festive, sun-soaked advertising. According to Ad Age, Modelo Especial recently overtook Bud Light as the top-selling beer in the very important Los Angeles market. Company officials have said they plan to increase their marketing spending on Pacifico beer as well as its Victoria brand, which currently advertises only to Spanish-speaking consumers.
Constellation’s wine and spirits business fell 4%, mainly due to “promotional activity,” according to Sands. The company has made key acquisitions of late, including whiskey maker High West late last year and Schrader Cellars wines earlier this month. Market analysts don’t expect Constellation's acquisition drive to slow anytime soon — the company recently made a bid for Jack Daniels maker Brown-Forman, and was rebuffed — which should continue to drive growth in the segment.
In recent years, Constellation has sharpened its focus around premium, high-margin brands and shed lower-value assets. It’s an approach that has made it one of the fastest growing packaged goods companies in the industry. But with competitors like Diageo, which recently acquired tequila brand Casamigos, also surging, many wonder whether the company can continue its impressive growth.