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Constellation Brands Earnings: What to Watch

By Demitri Kalogeropoulos – Jan 3, 2022 at 7:30AM

Key Points

  • Sales trends have been volatile, but the imported beer business is looking strong.
  • The short-term earnings picture is cloudy due to rising costs and struggles in the wine business.
  • Look for a potentially bright outlook from the management team on Thursday.

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The alcoholic beverage giant will announce third-quarter results in a few days.

Constellation Brands (STZ 0.46%) has some big questions to answer for investors in just a few days. The alcoholic beverage giant's stock performance is trailing the market through the closing days of 2021, mainly thanks to questions about its growth potential. The owner of hit beer brands like Corona and Modelo is also struggling with more issues from its wine and spirits division, which has been a drag on the business for the last few years.

With that big picture in mind, let's look at how Constellation Brands might surprise Wall Street in its third-quarter report on Thursday, Jan. 6.

A man shopping for beer.

Image source: Getty Images.

Sales trends

While the stock is underperforming the market in 2021, shares are up since Constellation's last earnings report. That announcement showed solid growth in the core beer business, with the Model brand leading the way toward a 7% spike in depletions.

The company noted a sharp drop in demand for its hard seltzer products, but its more diverse portfolio has allowed it to continue expanding sales at a solid clip. Rival Boston Beer wasn't so lucky.

We'll learn on Thursday whether Constellation Brands is still benefiting from that wider portfolio that focuses on premium imported beer brands like Pacifico and Corona. The wine segment is projected to grow by just around 3%, in contrast, as the company keeps working to transform that division through brand divestments.

Fixing the supply chain

Some of the biggest questions for shareholders surround pricing and supply chain issues. Constellation Brands said it couldn't fully stock its customers last quarter thanks to transportation challenges. Costs are spiking on key materials like glass and aluminum, too. This week's report will show whether the company has a handle on these logistics issues and whether consumers are OK paying more for their alcoholic beverages.

Success in these areas will show up in operating margin, which is likely to drop slightly in the beer portfolio before starting to rebound in late 2022. CEO Bill Newlands and his team should discuss that earnings outlook on Thursday.

Looking out to 2022

Heading into the announcement, executives are calling for earnings to land between $10.15 per share and $10.45 per share in fiscal 2022, or a bit higher than they had forecast three months earlier. The main driver of the stock's movement this week will be any shift in that prediction.

Sales in the beer unit should rise by about 10%, which is good news given the slumping demand for hard seltzers. Another double-digit percentage growth year would be a testament to Constellation Brands' diversification and the enduring demand for premium imported beers.

The wine and spirits segment might continue pressuring results through 2022, dragging the overall business down in areas like sales growth and profitability. But Constellation Brands is still generating plenty of cash that it can direct toward upgrading its brewery network and supporting brands through marketing. Excess funds will be coming back to shareholders through stock buybacks, too.

These positive factors should support investor returns while they wait for bigger initiatives, like the company's bet on recreational marijuana products, to start paying dividends over the next few years.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns and recommends Constellation Brands. The Motley Fool recommends Boston Beer. The Motley Fool has a disclosure policy.

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