How High Can Constellation Earnings Climb?

Constellation Brands (NYSE: STZ  ) will release its quarterly report on Thursday, and investors are looking for the maker of alcoholic beverages to keep pressing higher in its growth efforts. In the aftermath of the merger between Anheuser-Busch InBev (NYSE: BUD  ) and Grupo Modelo, Constellation earnings are poised to soar as the company took complete control of its former Crown Brands joint venture with Grupo Modelo.

Constellation Brands isn't itself a well-known name, but brands like Mondavi wine, Svedka vodka, and Black Velvet Canadian whiskey have given it huge prominence in the world market for alcoholic beverages. Now that Constellation has permanent rights to distribute popular beer brands Corona and Modelo in the U.S., the company stands to benefit from its trifecta of beverage offerings. 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 report.

Stats on Constellation Brands

Analyst EPS Estimate

$0.88

Change From Year-Ago EPS

24%

Revenue Estimate

$1.53 billion

Change From Year-Ago Revenue

119%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Constellation earnings lift investors' spirits this quarter?
In recent months, analysts have boosted their view on Constellation earnings, raising their August-quarter estimates by a penny per share and their full-year fiscal 2014 projections by a nickel per share. The stock has done even better, with an 11% gain since late June.

What's notable is that Constellation's stock has managed to rise despite having failed to please investors in its May quarter. An earnings miss wasn't what shareholders wanted to see and might ordinarily have sent shares downward. But Constellation also gave positive guidance for the remainder of the fiscal year, boosting its earnings range by a nickel per share due to reduced interest expense stemming from lower rates.

On the wine front, Constellation has had great success over the long run, pushing its market share up by 7 percentage points over the past decade to 31% as of last year. With Americans starting to gravitate away from their traditional love of beer and more toward wine, the largest wine producer in the world has a huge opportunity to capitalize on increased demand.

But a huge challenge for an expanded Constellation comes from the public's rising demand for flavored liquors. Diageo (NYSE: DEO  ) has jumped onto the trend toward flavored vodka, coming out with innovations for its Smirnoff and Ketel One brands. Even in the beer arena, Budweiser and Molson Coors (NYSE: TAP  ) have made moves like adding flavors or coming out with seasonal beers in order to drive sales. Corona could respond to some extent against Coors and Anheuser-Busch, and Svedka has a line of eight flavors in addition to its regular liquor. Still, it's unclear whether Constellation can innovate as quickly as Diageo in spirits, especially with Diageo sporting better net margins and returns on equity already.

In the Constellation earnings report, watch the company's mix of revenue among its various segments. Growth from all corners would be welcome, but any particular success would be enlightening for shareholders considering the future direction that Constellation is likely to choose going forward.

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