Shares of Constellation Brands (STZ 0.41%) trounced the broader market for years as its premium imported beer brands won market share from traditional giants like Molson Coors. Yet that stock surge was disrupted in 2019 due to challenges in its wine and spirits segment, along with rocky returns from its huge investment in pot stock Canopy Growth (CGC -8.58%).
Those issues will be front and center in investors' minds when Constellation Brands announces its earnings results in just a few days, while updating its outlook for the fiscal year ahead. Let's look at what shareholders might expect when the company reports Q3 results on Wednesday, Jan. 8.
Constellation's growth since 2012 has been tilted toward the runaway success of imported brands like Corona and Modelo, but the beer business is even more crucial now that the company is shedding underperforming brands across its portfolio.
That shift was clear in its last earnings report, with a 6% beer volume spike being offset by the 13% slump in the wine and spirits segment. Look for Constellation to highlight market share gains in brands like Modelo, Corona, and Pacifico this week, which together accounted for most of the wider industry's growth last quarter.
The wine and spirits division should keep shrinking thanks to the smaller portfolio. But look for CEO Bill Newlands and his team to give an update on the core premium products, which they call their "power brands." These include franchises like Meiomi wines and Svedka vodkas, which Constellation is betting on to lift the broader portfolio over the next year or so. The power brands segment dipped 4% last quarter, but investors will be demanding better results from that division in time.
Refreshing the outlook
Constellation will issue two important outlook updates this week. The first will include any changes to the consumer stock's operating prediction that currently calls for beer sales to rise by about 8% in fiscal 2020 as operating income expands at the same rate. The company also sees the wine and spirits division dropping by as much as 20%, mainly because of the divestment of many of its lower-margin brands. Both forecasts are subject to revision on Wednesday to reflect the latest demand trends.
The bigger question mark hovers over Constellation's investment in Canopy Growth, which has so far mainly injected volatility into its earnings results without providing much return for investors. The company booked an almost $500 million noncash loss last quarter and has been vocal about its disappointment with the pot stock's poor financial performance.
David Klein, Constellation's former CFO, took over the CEO position at the marijuana giant and plans to combine cost cuts with new growth initiatives. We'll likely get more details on how Constellation's management sees the shift working out for its investment, which covers more than 40% of Canopy's equity with an option to boost that ownership level beyond 50% if the financials start to make more sense.