Upbeat Q4 Performance Cheers Up Constellation Brands

Constellation Brands, Inc. (NYSE: STZ) impressed investors with better-than-expected results for the fourth quarter of Fiscal 2022 (ended February 28, 2022). Earnings exceeded the consensus estimate by 22%, and sales exceeded the same by 4%.

The performance was driven by growth in the beer business. Along with the results, Constellation Brands announced an accelerated share buyback program.

Shares of this manufacturer and supplier of beer, wine, and spirit rose 4.6% to close at $242.50 on Thursday.

Quarterly Highlights

In the reported quarter, Constellation Brands’ non-GAAP earnings were $2.55 per share, above the consensus estimate of $2.09 per share. On a year-over-year basis, the bottom line increased 32.1% on the back of healthy sales growth, improved operating results, and lower taxes and share count.

Revenues stood at $2.1 billion, up 8% from the year-ago quarter and above the consensus estimate of $2.02 billion. Organically, the quarter’s top line increased 11% year-over-year.

Sales in the Beer segment advanced 14% year-over-year to $1.57 billion. The segment sales accounted for 74% of the quarter’s total revenues. However, sales in the Wine and Spirits segment were down 7% year-over-year to $536.8 million. Wine sales decreased 6% to $468.2 million, and Spirits fell 13% to $68.6 million. The Wine and Spirits segment accounted for 26% of the quarter’s total revenues.

Non-GAAP cost of products sold in the quarter increased 9% year-over-year to $1,021 million, and non-GAAP gross profit at $1,081.5 million grew 6% from the year-ago quarter. The gross margin fell 60 basis points (bps) to 51.4%. Operating income (non-GAAP) in the quarter expanded 17% year-over-year to $658.9 million. The operating margin was 14%, down 360 bps year-over-year.

The effective tax rate in the quarter was 14%, lower than the year-ago quarter’s rate of 17.6%. Shares outstanding declined 2.7% year-over-year, contributing to earnings growth in the quarter.

Annual Highlights

Constellation Brands’ non-GAAP earnings were $10.99 per share, reflecting an increase of 5.3% from the previous year. Revenues increased 2% year-over-year to $8,820.7 million.

Exiting the year, the company’s cash and cash equivalents were $199.4 million, reflecting a 56.7% decline from the previous year. Long-term debt (net of current maturities) was down 8.9% to $9,488.2 million.

In Fiscal 2022, the company’s net cash flow from operating activities was $2,705.4 million, down 2.6% year-over-year. Capital expenditure at $1,026.8 million reflected an 18.8% increase. Free cash flow at $1,678.6 million was down 13.6%.

Projections for Fiscal 2023

Constellation Brands anticipates non-GAAP earnings of $11.20-$11.50 per share in Fiscal 2023 (ending February 2023). Beer’s net sales are predicted to grow 7%-9% year-over-year, and that of Wine and Spirits are anticipated to fall 1%-3%.

The company anticipates net cash flow from operating activities to be within the $2,600-$2,800 million range. Capital expenditure is predicted to be $1,300-$1,400 million and free cash to range from $1,300 million to $1,400 million.

In the first quarter, the company anticipates buying back shares worth $500 million. It expects full-year reward to shareholders, in the form of dividends and share buybacks, to total $5 billion.

Official Comment

Constellation Brands’ President and CEO, Bill Newlands, said, “…we extended our leadership position in the high-end of the U.S. beer market, our high-end wine and spirits brands continue to outpace the industry complimented by successful innovation, we continue to invest aggressively in our core business, and we’ve set a strong foundation for future growth.”

Capital Deployment

During Fiscal 2022, Constellation Brands used $1,365.3 million for repayment of long-term debts, $573 million for dividend payments and $1,390.5 million to repurchase treasury stocks.

Concurrent with the results, the company announced a $500 million accelerated share repurchase agreement. Per the agreement, 80% of shares to be repurchased under this program will be received today.

As mentioned in the press release, the company declared a quarterly dividend of $0.80 per share that will be paid on May 19 to shareholders of record as of May 5.             

The company’s CFO, Garth Hankinson, said that the company is focused on “maintaining an investment-grade rating, returning capital to shareholders through dividends and share repurchases, and investing in the growth of the business.”

Stock Rating

Following the earnings release, William Kirk of MKM Partners maintained a Hold rating on Constellation Brands with a price target of $229 (5.57% downside potential).

The analyst found the company’s Fiscal 2023 earnings guidance disappointing, as it falls short of the consensus estimate of $11.50 per share. “It could be difficult for full-year earnings to rise given that Constellation appears unlikely to raise prices to fully offset rising costs this fiscal year,” he opined.

Overall, Constellation Brands has a Strong Buy consensus rating based on 10 Buys and three Holds. Constellation Brands’ average price target of $272.50 suggests 12.37% upside potential from current levels. Over the past year, shares of Constellation Brands have increased 8.2%.

News Sentiment

Per TipRanks, News Sentiment for Constellation Brands is currently Very Positive based on 28 articles over the past seven days. 100% of the articles on STZ have a Bullish sentiment, compared to a sector average of 62%.

Conclusion

With a strong foothold in the beer market, Constellation Brands seems well-positioned to leverage from high demand in the industry.

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