Constellation Brands Inc reported better-than-expected quarterly results and raised its full-year earnings forecast on Friday, boosted by strong demand for its Modelo Especial and Corona Premier beers, sending its shares up 8%.
The brewer has added more Mexican beers and in recent quarters, craft beers, to its portfolio to cater to rising demand from younger consumers, helping the company grow sales even as beer demand wanes across the globe.
Sales of the company's beers rose 7.4% to $1.48 billion in the first quarter ended 31 May. Operating margin in the business increased 150 basis points to 39.3%, benefiting from favourable pricing and a stronger dollar.
For the summer, the brewer has launched Corona Refresca, a malt beverage that comes in tropical flavours.
Power Brands
Constellation, which is shedding 30 of its lower-end wine brands after struggling to grow the business, now expects its “Power brands” wine portfolio, which includes Kim Crawford and Meiomi, to perform well this year.
The company also predicted a slower sales decline for the segment this fiscal year, falling between 20% and 25%. The company had projected a 25% to 30% drop.
“(Constellation's) solid beer gross/op margin beat attests to the strength of STZ's collection of industry-leading Power Brands in the premium segment and strong cost discipline, supporting our confidence that STZ's growth engines are well intact,” Wells Fargo analyst Bonnie Herzog said in a note.
Constellation raised its profit expectations for fiscal 2020, and now sees earnings per share on a comparable basis to be in the range of $8.65 to $8.95 from $8.50 to $8.80 earlier.
The brewer posted a net loss in the reported quarter, mainly due to equity losses in Canadian marijuana producer Canopy Growth.
Constellation was one of the early entrants to the growing cannabis industry in 2017 when it took a stake in Canopy Growth.
Excluding one-time items, Constellation earned $2.21 per share, well below analysts' estimates of $2.04 per share, according to Refinitiv IBES data.
Overall, net sales rose 2.5% to $2.10 billion. Analysts had expected net sales of $2.07 billion.
Shares of the Victor, New-York based company, which have gained 17% this year, were trading at $203.1 before the bell on Friday.
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