Modelo Especial Is Joining Corona in Taking Over the Beach

The conference call following earnings had some interesting information.

Jul 13, 2014 at 9:21AM

Source: Wikimedia Commons

"Our beer business is on fire," stated Rob Sands, CEO of Constellation Brands (NYSE:STZ) on the first-quarter conference call. A little more than a year ago Constellation Brands made its "game changing beer acquisition," bringing new life to the wine and spirits company. Constellation Brands is in the process of expanding its brewing operations in Mexico.

Pour me a cold one
Sands went on to explain that the 14% pop in beer sales significantly beat trends both in imports and overall in the U.S. beer market. Constellation Brands is seeing demand spike across all of its Mexican beer brands, not just one, implying that this is due to the company's excellent execution across all metrics.

Sands credited "new marketing and advertising programs," which are apparently a hit with consumers, new points of distribution (which is always key), and the introduction of new product offerings. Singled out were the Modelo Especial Chelada and Corona Light Draft.

Corona Light Draft continues to beat the company's expectations, Sands said. Which makes sense -- how often do you see a refreshing import light beer on draft in everyday bars and restaurants? Usually it's just the boring Bud Lite, Coors Light, Miller Lite, or you are out of luck.


Source: Wikimedia Commons

More than a pint
Overall Constellation Brands expects 10% more beer volume to be sold this year along with a jump in operating income of between 25% and 30% for the beer segment. Its five core brands are now in the top 15 of all imported beers. Corona Extra was the only top-five import to grow in the first quarter, while Corona Light continues to be the No. 1 import.

Modelo Especial moved up to the No. 2 spot among beer imports. I remember once upon a time when it was one of the beers you would see in small quantities on the shelves, peer at it for a minute, and then move on. Now it's taking up shelf space everywhere by the case.

Put it on my tab
The World Cup in South America this year probably is helping since Constellation Brands initiated a soccer promotion kickoff that began in May. With all of this influx of demand, the next thing you may be wondering about is pricing power.


Source: Wikimedia Commons

Sands said in an interview on CNBC: "We'll see what pricing power there is in the future; that depends on the competitive landscape." This basically implies that he's leaving the door wide open for possible price hikes on the beer above any input cost inflation.

Speaking of higher numbers, in light of the quarter Constellation Brands raised its guidance for diluted earnings per share of between $4.10 and $4.25 compared to previous range of $3.95 to $4.10. Is a share price of $90 too steep for earnings in that range? Only if you have a one-year time horizon, then maybe it is. Don't be surprised to see those earnings grow substantially if the company keeps firing successfully on all cylinders.


Source: Wikimedia Commons

Foolish takeaway
In case you haven't noticed, Constellation Brands is killing it in the beer biz, but the company hasn't done much talk about next year and beyond. Based on management's first year of execution, Fools may want to follow this one closely; you got to figure that management has some more ideas in their bag of tricks in terms of marketing, new products, and/or distribution.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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