Investors saw a lot of changes from Constellation Brands (STZ 0.78%) this past year. The alcoholic beverage giant revamped its portfolio to focus even more on the premium side of its competitive niches. It made further pushes into high-growth arenas like hard seltzer and recreational marijuana and managed to boost sales during a turbulent year for the industry.
The next year promises even more volatility as Constellation Brands works to protect its growth momentum while making aggressive bets on its business.
Let's look at what investors can expect from the company in 2021.
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Market share
Constellation Brands has a good shot at sticking near the top of the industry when it comes to growth. Its beer business is healthy, with consumption rising 7% in 2020. That trounced global beer conglomerates like Anheuser-Busch InBev but wasn't as strong as Boston Beer managed.
The company's Corona hard seltzer has about 6% of that hot market niche, while Boston Beer's Truly brand owns closer to 26%. Constellation is hoping new flavor introductions, plus continued success in the Modelo franchise, will power a 12th consecutive year of sales growth for its booming beer division. Management is targeting a 7% to 9% sales increase in 2021 .
Cash and profits
Like Boston Beer, Constellation Brands is predicting a rough profit situation over the short term. Management is aiming to spend more cash expanding and upgrading its brewer network to meet demand over the coming decade. Other costs are rising, including for glass and labor.
Another year of rebuilding for the wine and spirits segment will also contribute to weaker earnings growth. Overall, look for core earnings to land between $9.95 and $10.25 per share, management predicts, compared to $9.97 last year.
On the bright side, cash generation trends are strong, with free cash flow reaching as high as $1.5 billion. Success here will allow Constellation Brands to boost its dividend and engage in stock buybacks in 2021 even as it pours resources into expansion projects.
The unknowns
The prospects for federal legalization of recreational marijuana appear bright, although there's no telling when legislation will pass that would open up Constellation Brands' access to the U.S. For now, Canopy Growth (CGC 1.28%) executives are working to position the company for a dominant industry position when legalization occurs.
Aside from that question mark, fiscal 2022 should look similar to fiscal 2021. Constellation Brands is on pace to expand market share in the beer division while making progress in restructuring the wine division so that it is no longer a drag on growth or profits. Cash returns will be generous, but the best indicator for the future is that the company is planning to spend nearly $1 billion on its Mexican brewery network this year.
That level of investment isn't something peers can easily match, and it's a result of Constellation Brands' strong industry position. Management is betting that annual sales in a few years will be far higher than the $8.6 billion that the company reported in fiscal 2021. Fiscal 2022 should be a bit of a rebuilding year on the path toward those bigger wins ahead.
