Investors had high expectations for Constellation Brands' (NYSE:STZ) fiscal first quarter results, given that the alcoholic beverage giant frequently trounces management's forecasts. Its announcement this week didn't disappoint.

In fact, the alcoholic beverage giant continues to dominate the beer market with its portfolio of high-end brands. Gains in this segment more than offset weak results in the wine portfolio as Constellation Brands boosted its full-year profit outlook.

Friends having a beer together.

Image source: Getty Images.

More on that earnings forecast in a moment. First, here's how the big-picture operating results stacked up against the prior year:


Q1 2017

Q1 2016

Change (YOY)


$1.94 billion

$1.87 billion


Net Income

$405 million

$319 million






Data source: Constellation Brands' financial filings.

What happened this quarter?

Constellation Brands capitalized on heavy beer-drinking holidays including Cinco de Mayo and Memorial Day to soak up more market share at the high end of the industry this quarter. Prices rose as well, which more than offset soft demand in its wine and spirits business to send profitability rising.

Highlights of the quarter included:

  • Beer sales rose 8% due to a mix of higher volume and increased average prices. Constellation Brands' portfolio, led by the Corona brand, posted a 12% rate of depletions, which measures consumption volume at distributors.
  • The wine and spirits segment shrank by 4% on weakening depletion trends in the wine portfolio, which management blamed on the timing of promotions. Spirits saw healthy, double-digit growth thanks to strong demand for High West Whiskey and SVEDKA Vodka.
  • Operating income ticked higher by 3% to keep the reported margin unchanged at 29% of sales. After accounting for unusual charges and the divestment of its Canadian wine business, adjusted operating margin jumped over 5 percentage points to 35% of sales.
  • Net income soared nearly 30% higher thanks mainly to a far lower income tax expense.

What management had to say

Executives were pleased with the results. "We're off to a great start for our new fiscal year," CEO Rob Sands said in a press release. "Across the business, we're driving consumer demand for our exceptional portfolio of premium products while executing strong financial and operational performance," Sands continued.

Corona beer bottles.

Image source: Constellation Brands.

Management noted that Corona, the country's top-selling premium beer, led the beer business to another blockbuster quarter that paired market share gains with increased average prices.

The company recently launched a few innovations in the franchise that are performing well above expectations in test markets right now, according to executives.

Looking forward

Sands and his team have an aggressive marketing plan that they believe will return the wine business to solid growth over the rest of the fiscal year. The beer division, meanwhile, is performing even better than expected and that is the main driver behind management's increased earnings outlook.

While still targeting beer sales growth of between 9% and 11%, Constellation Brands boosted its operating income target for the segment to gains of between 13% and 15% from the prior outlook of between 11% and 13%. As a result, per share earnings are now expected to rise to $8 at the midpoint of guidance, compared to past target of $7.85.

The company still plans to achieve free cash flow of as high as $825 million this year despite investing $1 billion expanding its Mexican beer production capacity. This fiscal year should mark peak spending on that initiative, after which annual cash flow should jump toward $2 billion as the company cashes in on its bigger, more profitable beer operations.

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