It has been about a month since the last earnings report for Constellation Brands Inc (NYSE:STZ) . Shares have added about 3.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Constellation Brands Q4 Earnings & Sales Beat Estimates
Constellation Brands posted solid results for fourth-quarter fiscal 2017. The company’s adjusted earnings for fourth-quarter fiscal 2017 rose 24% year over year to $1.48 per share, outperforming the Zacks Consensus Estimate of $1.37. Reported earnings came in at $2.26 per share, up 90%, year over year.
Net sales advanced 5% to $1,628.0 million, driven by strong organic sales growth. On a currency adjusted basis, organic sales grew 7%. Moreover, the top line exceeded the Zacks Consensus Estimate of $1,587 million.
Sales benefited from strong volumes and favorable pricing at the beer business which drove 11% sales growth at the segment. Organic net sales for the segment grew 10%.
Wine and spirits’ sales remained flat, as 4% growth in organic sale and contributions from Prisoner wine, Charles Smith and High West acquisitions were negated by sale of the Canadian wine business.
Cost and Margin Performance
Adjusted gross profit for the quarter improved 10% year over year to $786.4 million. The adjusted gross profit margin expanded 190 basis points (bps) to 48.3%.
Constellation Brands' comparable operating income grew nearly 14% to $494.8 million with the comparable operating margin expanding 220 bps to 30.4%. This growth was backed by solid operating income improvement at both the beer (21%) and wine and spirits (6%) businesses. The beer segment gained from higher organic volume, effective pricing and lower product costs, while growth at the wine and spirits segment was attributed to organic volume growth and contributions from acquisitions. This was partly offset by greater marketing expenses (at both segments) and higher SG&A expenses.
Financial Position
Constellation Brands ended the quarter with cash and cash equivalents of $177.4 million. As of Feb 28, 2017, the company had $7,720.0 million in long-term debt (excluding current maturities) and its total shareholders’ equity was $6,884.8 million.
In fiscal 2017, Constellation Brands generated $1,696.0 million in cash from operations and free cash flow of $788.6 million, fueled by greater operating cash flows at both the segments.
Well, the company’s solid cash flows and financials provided it with the flexibility to make share buybacks and hike quarterly dividend. In fiscal 2017, the company bought back 7.4 million shares for $1.1 billion. This included the company’s fourth quarter buybacks of 5 million shares for $750 million.
Further, on Apr 5, the company raised quarterly dividend by nearly 30% to $0.52 per share for Class An and $0.47 for Class B shares. This dividend is payable on May 24, to shareholders on record as of May 10.
Fiscal 2018 Outlook
Management remains encouraged with robust fiscal 2017 results which along with superb cash flows enabled the company to raise dividend, make share buybacks, support acquisitions and make constant investments to facilitate business growth throughout the fiscal. Also, management remains pleased with the faster-than-expected expansion at the Nava brewery in Mexico where it successfully concluded the next phase of its expansion plan of 25 million hectares.
Given the splendid year and ongoing momentum, management issued a fresh guidance for fiscal 2018. The company remains focused on achieving adjusted earnings per share growth that surpasses its previously anticipated target of at least 10%. The company envisions adjusted earnings guidance in a range of $7.70–$8.00 per share. On a reported basis, earnings per share for fiscal 2018 are anticipated in the range of $7.65–$7.95.
Further, the company expects net sales for the beer segment to grow 9–11%. Operating income at this segment is anticipated to increase in a band of 11–13%.
Sales at the wine and spirits’ segment are projected to decline 4–6%, whereas the operating income is expected to remain flat year over year, mainly due to the impact from sale of its Canadian wine business, partly compensated by benefits from the High West, Charles Smith and Prisoner acquisitions.
Certain other factors were taken into consideration before providing the earnings guidance. These include an interest expense expectation of $340–$350 million, an approximate tax rate of 22% and weighted average diluted shares outstanding of approximately 201 million.
The company anticipates capital expenditure for fiscal 2018 in the range of $1.175−$1.275 billion with roughly $1.0 billion estimated for expansion of Mexico beer operations.
The company’s free cash flow expectation for fiscal 2018 lies in the range of $725−$825 million. Operating cash flow is projected in the range of $1.9–$2.1 billion.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter
Constellation Brands Inc Price and Consensus
Constellation Brands Inc Price and Consensus | Constellation Brands Inc Quote
VGM Scores
At this time, Constellation Brands' stock has a subpar Growth Score of 'D', while it is lagging a bit on the momentum front with 'F'. Following a similar course, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.
Constellation Brands Inc (STZ): Free Stock Analysis Report
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