E-Malt.com News article: USA: Shares of Constellation Brands hit new highs owing to strong fourth quarter earnings report

Shares of Constellation Brands hit new highs last week on the heels of a strong fourth quarter earnings report. Despite the short rally, shares ended the week down 5% and gave back most of their gains, Seeking Alpha reported on April 20.

The fourth quarter continued the growth for Constellation Brands in the beer segment. In fact, the company reported it gained market share in 48 of the 50 U.S. states. The company's Corona Extra remains the number one imported beer brand. In fiscal 2015, Constellation shipped more than 105 million cases of Corona Extra. A telling stat for investors is the fact that Corona Extra was the only top five beer brand in the U.S. to see growth last year. The beer could continue to see further gains in 2016 with Constellation planning increased national television advertising.

Beyond advertising, the growth for Corona Extra is coming from cans. From the earnings call, "Most importantly, fiscal 2016 will represent the year of the can for Corona Extra. We see great opportunity for growth with cans as this format currently represents less than 3% of total sales for Corona Extra." Corona Extra which is a top five brand in the country and then number one imported beer gets 3% of its revenue from cans, one of the most popular packaging models in the United States.

While Corona Extra remains a top five beer brand and the number one import, Constellation is also investing heavily in Corona Light, which is trying to grow its share in a highly fragmented light beer market in the United States. From the earnings call came this, "We have had good success expanding the distribution of Corona Light Draft and we plan to continue building on the success in fiscal 2016 by expanding our national draft footprint with recent launches in eight additional markets".

To put this growth of draft beer into perspective, consider that when Constellation began expanding its brands further into draft, it received less than 2% of its revenue from this source. The company's goal is to hit 10% of sales from draft over the long term, clearly leaving plenty of growth on the table. Prior to the Corona Light and Corona Extra brands expanding into draft, the company's largest draft account was Pacifico, a lesser known brand.

Modelo Especial is another source of growth for Constellation Brands. Recently, the beer became the number two imported beer in the United States, passing Heineken. This now gives Constellation Brands the top two imported beers in the U.S. Depletion growth continued to be strong in the fourth quarter at +16%. The beer had market share of 15%, which has doubled in the last five years.

Beyond the company's key flagship brands, it's also worth noting the growth of several other items. Victoria recently became the third best selling beer in Mexico with a 15% market share. Together with the other Constellation Brands beers, the share of the Mexican market continues to expand. Victoria has also expanded its presence in the United States with the introduction of the brand into new states. In fiscal 2016, Victoria will be introduced in cans in the United States for the first time, which should continue the strong growth of this particular brand.

Keep in mind that despite the strong growth in the beer segment and Constellation's correlating share price growth, the company sees strong growth ahead. How much growth? The company said, "doubling the business over the next ten years is certainly a doable number".

Perhaps the other reason Constellation Brands shares saw a nice rally last week was the guidance for fiscal 2016. The company sees earnings per share coming in a range of $3.70 to $3.90. The company believes the beer business will see growth in the mid-single digit range for volume and the high-single digit range for sales. A look at Yahoo Finance shows analysts guiding for fiscal 2016 earnings per share of $4.86. Yahoo lists a revenue target of $6.4 billion, representing growth of 5.4%. For fiscal 2017, early estimates call for 5.5% revenue growth to $6.7 billion and earnings per share of $5.53. That 2016 earnings number seems pretty accurate given the company's recent guidance, however some analysts think 2017 numbers seem a bit conservative given the company's strong beer brands and growth through cans and draft.

In fiscal 2015, the company raised its full year guidance from a range of $4.10 to $4.25 to a range of $4.25 to $4.35. The final result was full year earnings of $4.44 per share, well ahead of both prior released ranges.

The other item investors should be excited about is Constellation's decision to pay a quarterly dividend. This marks the first time in company history and is made possible by the recent growth of the beer business through the Crown Imports acquisition. The company is targeting a payout range of 25 to 30% of earnings. This was a topic during the earnings call question and answer segment, as the peer group payout level is in the 45% range. Constellation stood behind its payout range and said it prefers to start on the lower end. This provides plenty of room for annual raises to the dividend. The dividend decision comes after being a very proactive share buyback company.

Shares of Constellation Brands ended the week trading at $115.98, down 5% for the week, but coming after hitting new highs of $121.92 recently. The company sports a $22.5 billion market capitalization.



22 April, 2015