Constellation Brands (STZ -0.68%) has some big questions to answer for investors on Thursday. The alcoholic beverage giant turned in a solid performance during pandemic-dominated fiscal 2020.
It gained share in some key beer niches and outperformed global giants like Anheuser Busch InBev (BUD -0.38%) in the process. But rival Boston Beer (SAM 0.98%) enjoyed much faster growth. Investors will be watching for any change to those sales trends, or to Constellation Brands' aggressive earnings target, when the company announces fiscal Q4 results on Thursday, April 8.
Let's take a closer look at three questions investors will be asking related to the Q4 report.
1. How did Corona Hard Seltzer perform?
Constellation Brands' premium beer portfolio shone in recent months, growing 12% last quarter thanks to strong demand for import brands like Modelo, Pacifico, and Corona. The new Corona hard seltzer product held up well in a competitive niche, too, accounting for about 6% of sales while Boston Beer's Truly brand dominated the segment.
Investors are bracing for a growth slowdown this quarter, but that's mainly thanks to temporary shipping and inventory issues. CEO Bill Newlands and his team projected that beer sales will rise by nearly 10% for the year that ended in late February while the wine segment drops by about the same amount due to divestitures.
Look for executives to highlight how Constellation Brands is accounting for most of the beer industry's growth even as it branches out into niches like hard seltzer and recreational marijuana.
2. Are margins heading higher yet?
Constellation Brands' earnings took a hit in the last two years from a portfolio transformation plan that management said would pave the way for improving finances over time. The company has removed dozens of mostly lower-priced brands from the wine and spirits segment, with the most recent sale being its Paul Masson Grande Amber Brandy.
The proof will show up in operating margin, which executives predict will rise over the next year in the wine and spirits segment. That division has been a drag on profitability for several years, and investors are looking forward to that trend changing in fiscal 2022.
3. What's the new outlook?
The next year of sales trends will be volatile in comparison to the fiscal 2021 period that coincides with the huge demand swings around the pandemic. But Constellation Brands should still issue a new outlook on Thursday for metrics like sales growth, earnings, and cash flow. That forecast, along with management's comments on wider demand trends, might determine whether the stock outperforms the market over the next few months.
Look for an aggressive outlook in the beer segment that predicts an expansion pace near this past year's high-single-digit range. The wine and spirits business might grow slightly after falling about 16% this past year.
There's less uncertainty around cash flow and earnings, which should both be strong in fiscal 2022 now that Constellation Brands is wrapping up big spending projects like its Mexican brewery capacity upgrade. As a result, investors might hear some ambitious targets around cash returns through dividends and stock buybacks in Thursday's report.