Constellation Brands Earnings: The Key Takeaways

Constellation Brands (STZ 0.78%) announced mostly good news for investors in its latest earnings report. Despite cost challenges and reduced demand for hard seltzer, sales and earnings are up.

In this video from "Beat & Raise" from Motley Fool Live, recorded on Oct. 6, Fool contributors Rachel Warren and Brian Withers discuss the key takeaways from the earnings announcement.

Brian Withers: Let's kick things off with Constellation Brands, ticker STZ.

Rachel Warren: Yeah. Absolutely. Constellation Brands reported its earnings for the second quarter of its fiscal year 2022 this morning, so it counts its fiscal year a little bit differently than some other companies. If this is a newer company to some of our members, you're not alone, it was the newer company to me.

I'm just going to give a brief overview of the company and its business and then we're going to dive right into this most recent earnings report. Constellation Brands, they've been in business for 76 years.

They were founded in 1945. The company is a major producer of beer, wine, and spirits. It's actually one of the top beer importers in the U.S. and then they controls the leading share of the North American beer market. It's one of the top line producers in the world, one of the top beer companies in the US.

It's actually one of the top producers of wine in the New Zealand, interestingly enough. Beer has consistently accounted for the lion's share of Constellation Brands revenue and then beer market is where the company has a very strong foothold. Alcoholic beverage industry is worth trillions of dollars, but beer sales account for the most notable slices of this market.

If you weren't familiar with Constellation Brands before, now you might be familiar with some of the brands that it owns. Things like Corona hard seltzer, Corona Extra, Corona Light, Modelo beer, casino blade secure. Those are all under the preview of Constellation Brands. This industry has been dealing with some headwinds over the past several years.

Alcohol sales were up though during the pandemic. The company has had mixed earnings reports in recent years. For example, in the first quarter of this year, it reported a three percent increase in its net sales. It's wine and spirits business has definitely been struggling and beer is continuing to be where it is, generating the most growth.

Without further a do, we're going to take a brief look at how the company did in the second quarter of fiscal 2022. I'm just going to share my screen here. Can you see that?

Withers: Yeah, and if you could just hit ''Present'' up in the top just to the left to the share button.

Warren: Okay.

Withers: Share is yellow. Buyers are circle, and then go to the left, just a tad down into the right. Not that one. That's OK.

Warren: No, that one, sorry. [laughs]

Withers: Just to the left, Deprisa.

Warren: Technology is really not my strong thing. I'm sorry.

Withers: It's OK.

Warren: I don't even. [laughs]

Withers: Just to left of this share button, it says, present?

Warren: Yeah.

Withers: There you go.

Warren: It's a beautiful thing. Bear with me.

Withers: There you go. Awesome. Now we can read it.

Demitri Kalogeropoulos: Looks good.

Warren: But you guys want to read it, right?

Withers: Yeah.

Warren: Just a minor thing. Back to this. Just a mild interruption.

Just a quick work with analysts who were expecting from Constellation Brands, they we're forecasting net sales of about $2.3 billion, which you will see down here, they did surpass, and comparable earnings per share of $2.78, which they actually came in just a little bit under that.

You'll see here going back up. There we go. That the company reported $2.4 billion in net sales in the second quarter of its fiscal 2022. That's a 5 percent increase year-over-year. As I mentioned previously, comparable earnings per share of 238, but that definitely missed analyst estimates. But a lot of positive things from this report, operating cash flow was up six percent year-over-year. Beer shipment volume was also up 12 percent year-over-year. Beer depletion volume growth, which is an indicator of consumer sales that was up seven percent year-over-year, and total beer net sales.

Total net sales and it's beer segment which, as I mentioned before is its strongest part of it's business that was up 14 percent year-over-year. Other great high point from its earnings report, it actually boosted its comparable EPS guidance for the full-year fiscal 2022.

Previously had been projecting between $10.30 and you can see here it rates that slightly from $10.15 up as high as $10.45 earnings-per-share. In specifically within its beer segment, the company is projecting four-year net sales in fiscal 2022 to fall somewhere between nine and 11 percent. Overall net sales were looking good.

Beer businesses is strongest ever, which again, not surprising given the foothold that has in that particular industry. Where there were a couple of things that we're not really surprising given past quarterly reports, but still worth noting. Shipment volume and it's wine and spirits category was down 36 percent year-over-year and this most recent quarter.

Net sales in that area were down 18 percent year-over-year. When the company was giving its full-year guidance, it also noted that it's continuing to expect overall net sales declines within that segment for the full-year as well. I'm just going to stop sharing my screen here real quick.

Withers: The wine and spirits segment seems to be the reason for the single-digit growth. A lot of these alcohol companies have been seeing positive tailwinds with the coronavirus. But interest surprisingly, did they give any reasons for their wine and alcohol sales being down?

Rachel Warren: Now, it's like they've been really continually seeing these declines in recent quarters. It's not really a new trend. Then at the same time, they're also really noting that they're going from strength to strength.

I think part of what we're seeing, the wine and spirits industry as a whole, has had a tough time in recent years. I was actually reading an article about this where everything from people may be trying to have healthier habits, perhaps more moderation in just their social drinking or whatever that might be, has resulted in these shifts within the alcohol industry, but not so much with the beer segments of that industry.

Given the fact that Constellation Brands is such a major player in that area, it's not surprising. It was definitely a mixed quarter. I do think one strong point of interest for investors with this stock is the fact that it does pay a dividend. It's dividend yields about 1.4% right now and the company has a pretty solid track record of increasing that.

The beer, wines and spirit industry may not be the most thrilling one to invest in, but I will say with the stock, if you're looking for a company that has a footholds within the beer industry and a solid income stock, those are definitely two points of interest for this particular company.