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Constellation Brands, Inc. (STZ - Free Report) is scheduled to release third-quarter fiscal 2023 results on Jan 5, 2023. The alcoholic beverage bigwig is expected to deliver top-line growth in the to-be-reported quarter.

The Zacks Consensus Estimate for the company’s fiscal third-quarter earnings is pegged at $2.89 per share, indicating a 7.4% decline from the year-ago quarter’s reported figure. The consensus mark has moved down 2% in the past 30 days. The consensus mark for revenues is pegged at $2.39 billion, suggesting a 3.1% increase from the prior-year quarter’s reported figure.
 
We expect the company’s fiscal third-quarter total revenues to increase 2.5% year over year to $2,379.1 million and comparable earnings to decline 12.8% to $2.72 per share.

In the last reported quarter, the alcohol behemoth delivered an earnings surprise of 10.1%. Also, its bottom line beat estimates by 10.5%, on average, over the trailing four quarters.

Constellation Brands Inc Price and EPS Surprise

Constellation Brands Inc price-eps-surprise | Constellation Brands Inc Quote

Key Factors to Note

Constellation Brands is expected to have gained from continued growth in the beer business and robust consumer demand for its portfolio of premium, high-end products in the fiscal third quarter. STZ’s wine & spirits business has been benefiting from its premiumization strategy focused on making investments to fuel growth of its power brands through innovation, capitalizing on priority, consumer trends and product introductions. Strength in high-end Power Brands, including The Prisoner Brand Family, Kim Crawford and Meiomi, have been key growth drivers.

Constellation Brands has been significantly gaining from strength in the beer business. Depletion volume growth, stemming from strength in Modelo Especial and Corona Extra, has been aiding the top line. The beer segment has also been witnessing gains from premiumization, driven by growth in traditional beer as well as flavors category, including seltzers, flavored beer, RTD spirits and flavored malt beverages. These are likely to have aided the top line in the to-be-reported quarter. We expect revenues for the beer business to increase 3.5% year over year to $1,813.4 million in the fiscal third quarter.

However, higher COGS, and marketing and SG&A expenses have been affecting the company’s earnings.

On the last reported quarter’s earnings call, management expected the operating margin in the second half of fiscal 2023 to be affected by ongoing inflationary pressures across raw materials and packaging, additional headcount in training, increased depreciation related to its brewery capacity expansion, and higher marketing expenses.

Supply-chain challenges and elevated material costs due to inflationary headwinds have been weighing on the company’s bottom-line performance. Constellation Brands has been witnessing supply-chain challenges, driven by container surcharges and warehousing costs, which are likely to have impacted its business in third-quarter fiscal 2023.

For third-quarter fiscal 2023, we expect the adjusted operating margin to decline 400 bps year over year to 31.5%, driven by a 120-bps increase in SG&A expense rate and a 280-bps rise in COGS as a percentage of sales.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Constellation Brands this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Constellation Brands has a Zacks Rank #4 (Sell) and an Earnings ESP of -4.11%.

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