Why Constellation Brands Deserves a Closer Look

Next Tuesday, Constellation Brands (NYSE: STZ  ) will release its latest quarterly results. With the stock having performed well recently, the big question investors need to address is whether the company can keep growing fast enough to maintain those share-price gains.

Constellation Brands is the largest winemaker in the world, with brands like Robert Mondavi, Clos du Bois, and Ravenswood under its umbrella. But the company also deals in other alcoholic beverages, including Svedka Vodka and Black Velvet Canadian Whisky. As powerful as Constellation is in wine, the big action for the company recently has been happening in its beer segment. Let's take an early look at what's been happening with Constellation Brands over the past quarter, and what we're likely to see in its quarterly report.

Stats on Constellation Brands

Analyst EPS Estimate

$0.41

Change From Year-Ago EPS

2.5%

Revenue Estimate

$674.24 million

Change From Year-Ago Revenue

6.2%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will the stars align for Constellation's earnings?
Analysts have had mixed views over the past few months on earnings prospects for Constellation Brands, as they've cut their May-quarter estimates by $0.20 per share, but boosted their fiscal 2015 estimates by $0.34 per share. The stock has responded more favorably to the long-term prospects for the company, rising 9% since late March.

The big news for Constellation during the quarter came in April, when Anheuser-Busch InBev (NYSE: BUD  ) got government approval for its $20.1 billion buyout of Grupo Modelo. In order to satisfy antitrust regulators, Anheuser-Busch had to have Modelo sell its 50% stake in its Crown Imports joint venture to Constellation, as well as allowing Constellation to buy the Piedras Negras brewery that will serve as the primary production facility to deliver Corona beer and other Crown Imports products to the U.S. market. The Modelo buyout, and subsequent sales to Constellation, closed earlier this month.

Now that the deal is done, Constellation finds itself as the No. 3 beer producer for the U.S., and the company hopes to see better profit margins from the segment. Historically, beer drinkers have been more loyal to their brands than wine drinkers, and that has given brewers more pricing power, especially among the most popular brand offerings.

Still, beer, wine, and spirits have all seen a rise in competitive pressure lately. In the spirits space, Diageo (NYSE: DEO  ) has moved aggressively toward growth-spurring initiatives like flavored spirits, enticing a new demographic to consume more of its products. Meanwhile, players in the wine industry are facing rising input costs from higher grape prices, forcing them either to accept narrower profit margins, or try to pass higher prices on to consumers.

Beer is perhaps the most competitive space of all, with traditional brewers like Anheuser-Busch having to deal with the huge growth in the craft-beer segment, in which Boston Beer (NYSE: SAM  ) has positioned itself with a convincing edge. Boston Beer has become large enough to get economies of scale in its production, yet it still maintains a reputation for higher quality among beer drinkers.

In Constellation's report, watch for the company to identify which of its segments it intends to focus on for future growth. The company has plenty of challenges in its beer business, but the potential there is arguably the highest of any of its divisions, so investors should expect to see a lot of attention from company management on its future plans for Crown Imports.

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