Imported Alcohol Leader Constellation Misses on Earnings

Jacob Harper  |

Constellation Brands ($STZ), best known as the makers of popular alcoholic beverage labels like Robert Mondavi wines, Black Velvet whiskey, and both Corona and Modelo Beer; released their fiscal second quarter earnings report before the bell on October 3. Despite lofty projections on the back of the still-surging imported alcohol business, Constellation grew sales, yet missed expectations on both the top and bottom lines.

In the earnings report, Constellation reported earnings of $195.8 million, or 98 cents a share, compared with $1.52 billion, or $7.74 a share, the year prior. Revenues were $1.608 billion, compared to $1.46 billion the year prior. Analysts had been expecting profits of $1.15 a share on revenues of $1.643 billion.

A major dent in Constellation’s profits came from a recall of defective Corona Extra bottles manufactured by an outside supplier. Excluding costs associated with that recall, earnings per share came in at $1.11 apiece.

The voluntary glass recall was the result of a discovered defect in the glass that could cause glass particles to break off into the bottle, and affected about 1 percent of Corona Extra bottles available to US customers during August 2014.

Following the recall, Constellation released plans to acquire a massive glass production plant in Mexico from Anheuser-Busch (BUD) for $300 million. According to the release announcing the deal, this $300 million total will also include a “high-density warehouse, land and rail infrastructure and, along with customary closing conditions.”

This debt associated with this deal appears to have influenced the market’s reaction to Constellation’s earnings report.

Shares of Constellation were only down slightly on the earnings miss, falling a scant .27 percent to hit $85.03 per share. It appears that despite falling short of expectations, investors are still bullish as the company did not lower fiscal year earnings projections. The company reiterated that they expect to earn between $4.10 and $4.25 a share in that timeframe. This despite the fact the company expects its free cash flow to shrink, from earlier estimates of $425 million to $500 million down to $275 million to $350 million.

Constellations’ stock is still up 23.14 percent on the year, and 155 percent from its price two years ago.


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