Dive Brief:
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Constellations Brands reported a fourth-quarter revenue boost of 8% to $1.76 billion, compared to $1.63 billion for the year-ago period. Quarterly earnings came in at $379.4 million, up 28% from $296 million a year ago. Full fiscal year 2018 earnings were reported as $7.5 billion, up 3% from 2017, the company said.
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Net beer sales rose nearly 12% to $997 million for the quarter, and wine and spirit sales climbed 4.3% to $768 million. For fiscal 2019, Constellation said it expects net beer sales and operating income growth to be between 9% and 11%, and range from 2% to 4% for its its wine and spirit business.
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The Victor, New York-based brewing company noted that its Modelo brand family — Modelo Especial and Modelo Negra — had crossed the 110-million-case mark and posted a depletion growth of 18%. CEO Rob Sands said in a statement that Constellation had also completed "significant operational expansion milestones" at its brewery and glass plant in Nava, Mexico.
Dive Insight:
The country's No. 3 beer company has been investing in marketing its wine and spirits, and the move is clearly paying off. Sales in the segment — including Robert Mondavi and The Prisoner wines and SVEDKA vodka and Black Velvet whisky — saw a 4.3% jump during the fourth quarter compared to a more than 10% drop during the previous one.
U.S. spirits sales have been on the rise, driven by millennial interest in cocktails and whiskey, tequila, bourbon and gin. A 2016 survey found that millennials are more interested in drinking alcohol than baby boomers or Gen Xers, and they also like to experiment more with different brands and types. This has helped bolster Constellation's spirits portfolio, especially as the company puts more marketing funds behind it.
The company also has innovated in the segment, with its Cooper and Thief bourbon-barrel aged red wine blend, 7 Moons red wine blend and SVEDKA Vodka Blue Raspberry. Its Focus Brands segment saw positive growth in Meiomi, The Prisoner, Black Box and Ruffino.
The company's portfolio of Mexican beers — including Corona, Modelo Especial and Pacifico — continues to increase margins and market share as the Hispanic population in the United States grows. At an industry conference last fall, Constellation executives noted about 36 million Hispanics of legal drinking age now live in the U.S. That figure is projected to hit 46 million by 2025. But the brands enjoy a wide fan base throughout the nation. The earnings report touts the company's beer portfolio as the top contributor of growth to the U.S. market in the current fiscal year.
Constellation is continuing to look at the future, repositioning itself by exploring new categories — which could mean new profit opportunities. The company recently announced it purchased a 9.9% stake in Canadian marijuana company Canopy Growth Corporation. The $191-million deal will allow the two companies to develop cannabis-infused beverages and "stay ahead of evolving consumer trends."
This combination of popular beer brands, innovations in wine and spirits, investment in its glass plant, and a renewed marketing push has paid off for the company this past quarter and, if Constellation continues to leverage this approach, should put it in a positive financial position for fiscal 2019.
Wells Fargo analyst Bonnie Herzog was upbeat on the earnings report. Constellation, she said in a written statement, is still the firm's top beverage stock pick.
"Overall we were very impressed with STZ's Q4, which reflects the strength of its portfolio and solid execution," Herzog wrote.
But Susquehanna analyst Pablo Zuanic remained cautious on the beverage company, especially given reinvestment costs and political risks to U.S.-Mexico trade as renegotiation of the North American Free Trade Agreement continues. "Lack of margin expansion is below consensus expectations," Zuanic wrote.