Corona beer parent Constellation Brands Inc.’s stock was flat Thursday, after the company missed revenue estimates for its fiscal fourth quarter amid continued pressure on beer sales after it raised prices last year to combat inflationary pressures in its supply chain.
That led some consumers to reduce their consumption or even switch to cheaper beer brands, a trend highlighted by analysts this year.
Read now: Inflation has sent drinkers toward cheaper beer or fancier booze
The company’s
STZ,
beer depletions, a metric that measures the number of cases sold by distributors to retailers, was up 6.3% in the quarter, better than the growth of 5.7% posted in the third quarter, but still below the growth of 8% to 9% seen in the preceding four quarters.
Beer sales fell 2%, while wine and spirits sales fell 14%.
Truist analyst Bill Chappell said the depletion trends matched numbers offered by Constellation Brands at the recent CAGNY consumer conference, despite weather headwinds in February.
“Our worry is that the company’s days of growing beer topline by double-digits are in the rearview mirror (guide for +7-9% beer sales) and beer operating margins are still pressured by higher raw materials, packaging, logistics, and labor costs,” Chappell wrote in a note to clients.
Truist has a hold rating on the stock and said it expects a muted performance Thursday as investors digest the numbers.
“At CAGNY, the company implied that its beer margin would be just slightly below the 39-40% medium term algorithm and the midpoint of the guide indicates ~38%,” he added.
Weakness in the beer category dominated questions on Constellation’s last quarterly earnings call. The fourth-quarter call was slated to start at 10.30 a.m. Eastern time Thursday.
The company posted net income of $223 million, or $1.21 a share, for the quarter, down from $395.4 million, or $2.07 a share, in the year-earlier period. Adjusted per-share earnings came to $1.98 to beat the $1.83 FactSet consensus.
Excluding the losses from its investment in Canadian cannabis company Canopy Growth Corp.
CGC,
WEED,
EPS came to $2.15.
See now: Canopy Growth lays off 800 as its slashes spending and posts wider-than-expected loss
Sales fell 5% to $1.998 billion, below the $2.016 billion FactSet consensus.
CEO Bill Newlands and CFO Garth Hankinson said beer sales beat internal targets, while the wine and spirits business expanded operating margins. That improvement came from favorable mix and optimization measures that lowered grape costs.
CFRA analyst Garrett Nelson also stuck with a hold rating on the stock, “because STZ is in the middle of a major capex cycle with $4.0 billion to $4.5 billion to be spent from fiscal 2024 to fiscal 2026 on beer capacity additions, which should weigh on free cash flow.”
The company said it expects to generate $1.2 billion to $1.3 billion of free cash flow in fiscal 2024, down from $1.72 billion in fiscal 2023.
The expansion includes the construction of a new brewery in Southeast Mexico in the state of Veracruz, and modular capacity expansion,
optimization, and/or construction at the company’s existing sites in Nava and Obregon.
The company said it’s now expecting fiscal 2024 adjusted EPS of $11.70 to $12.00, while FactSet is expecting $11.68.
In other news, the company raised its quarterly cash dividend by 11% to 89 cents a share. The new dividend will be payable May 18 to shareholders of record as of May 4.
The stock has fallen 4.5% in the last 12 months, while the S&P 500
SPX,
has fallen 9%.
See also: Jack Daniel’s returns to its roots with longer-aged whiskeys
This post was originally published on Market Watch
