Constellation Brands Tops Q3 Earnings, View Cut Hurts Stock

Constellation Brands Inc. (STZ - Free Report) has delivered stellar third-quarter fiscal 2019 results, wherein the top and bottom lines surpassed estimates and improved year over year. With this, the company reported positive earnings surprise in 15 of the last 16 quarters, with the fourth positive sales surprise.

However, management cut its outlook for fiscal 2019, owing to higher interest expenses related to investment in Canopy Growth (CGC - Free Report) and expected softness in the wine and spirits business.

Consequently, shares of Constellation Brands have declined nearly 12% in the pre-market trading session. Moreover, this Zacks Rank #3 (Hold) stock has lost 22.3% in the past three months, much wider than the industry’s 11.2% decline.

Q3 Highlights

The company’s adjusted earnings in third-quarter fiscal 2019 increased 17.9% year over year to $2.37 per share and outpaced the Zacks Consensus Estimate of $2.04. Moreover, reported earnings were $1.56 per share, down 36.3% year over year.

Net sales improved 9.5% to $1,972.6 million and surpassed the Zacks Consensus Estimate of $1,911 million.

At the company’s beer business, sales improved 16% to $1,209.8 million, driven by 14.1% rise in shipment volume and depletions growth of 7.8%. Solid portfolio depletions and market share gains mainly stemmed from continued strength in Modelo and Corona brand families. These brands were aided by superb distribution gains and strong innovations.

In the fiscal third quarter, the company’s beer business was the most significant growth contributor in retail in the high-end U.S. beer market, courtesy of gains from Corona and Modelo Especial’s brands.

Further, the wine and spirits segment’s sales increased 0.4% to $762.8 million, owing to 1.5% growth in shipment volume, offset by 3.2% decline in depletions.

Margin Performance

Adjusted gross profit improved 8.5% year over year to $991.9 million. However, adjusted gross profit margin contracted 40 basis points (bps) to 50.3%.

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