Constellation Brands (NYSE: STZ) earnings release for the 1st quarter of their 2021 fiscal year
Category: Stock Market and Constellation Brands
Date: 2 July 2020 Stock Price of Constellation Brands (STZ): $185.88 We take a look at the 1st quarter earnings report of their 2021 fiscal year of Constellation Brands a leading international producer and marketer of beer, wine and spirits, and the owner of Corona beer and a equity investor in Canadian cannabis company, Canopy. How has the Covid-19 pandemic affected their earnings, especially considering the closure of bars and pubs across the world, aimed at stoping the spread of Covid-19
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Fiscal 20 represented another excellent year of strong results marked by milestones which include the achievement of record cash flow results and double-digit operating income growth for our iconic beer business. "
About Constellation Brands
Constellation Brands (NYSE: STZ and STZ.B), a Fortune 500® company, is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand, Italy, and Canada. Constellation is the No. 3 beer company in the U.S. with high-end, iconic imported beer brands such as the Corona and Modelo brand families, and Pacifico. Its high-quality wine and spirits brands include the Robert Mondavi and The Prisoner Wine Company brand families, Kim Crawford, Ruffino, Meiomi, and SVEDKA Vodka. The company’s portfolio also includes a collection of highly-rated wine brands such as SIMI and Mount Veeder Winery, spirits brands High West Whiskey and Casa Noble Tequila, as well as new wine innovations such as Cooper & Thief and Spoken Barrel.
Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand building, our trade partners, the environment, our investors, and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Since its founding in 1945, Constellation’s ability to see, meet and stay ahead of shifting consumer preferences and trends across total beverage alcohol has fueled our success and made us one of the top growth contributors in beverage alcohol in the U.S.
In the beer business, we have solidified our position in the U.S. beer market; enhanced our margins, results of operations and operating cash flow; and provided new avenues for growth. We have made capital investments and acquisitions to increase beer production capacity to secure independence from a supply standpoint and to support the growth of the business. Additionally, in an effort to more fully compete in growing sectors of the highend segment of the U.S. beer market, we’ve made several acquisitions of high-quality, regional craft beer brands and leveraged our innovation capabilities to introduce new brands that align with consumer trends.
In our wine and spirits business, as part of our efforts to focus on higher-end brands, improve margins and create operating efficiencies, we have acquired higher-margin, higher-growth wine brands and portfolios of brands, including Meiomi, Prisoner and Charles Smith, and have strategically optimized the value of this business, particularly lower-margin, lower-growth products, with the divestiture of the Canadian wine business and the expected transaction, which was recently announced, to divest a portion of our wine and spirits business. In addition, we have added higher-end brands to our spirits portfolio through the acquisitions of Casa Noble tequila and High West craft whiskeys.
The summary below shows the sales mix of Constellation Brands. It shows the sales values in Dollar millions as well as the relative contribution to total sales for Constellation Brands:
In the U.S., we are the leading imported beer company and have eight of the 15 top-selling imported beer brands. Corona Extra is the best-selling imported beer and the sixth best-selling beer overall in the U.S. and Modelo Especial is the second-largest and the fastest-growing major imported beer brand.
Beer brands of Constellation Brands:
Wine Brands
Wine Portfolio of Brands
Spirits Brands
Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand building, our trade partners, the environment, our investors, and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Since its founding in 1945, Constellation’s ability to see, meet and stay ahead of shifting consumer preferences and trends across total beverage alcohol has fueled our success and made us one of the top growth contributors in beverage alcohol in the U.S.
In the beer business, we have solidified our position in the U.S. beer market; enhanced our margins, results of operations and operating cash flow; and provided new avenues for growth. We have made capital investments and acquisitions to increase beer production capacity to secure independence from a supply standpoint and to support the growth of the business. Additionally, in an effort to more fully compete in growing sectors of the highend segment of the U.S. beer market, we’ve made several acquisitions of high-quality, regional craft beer brands and leveraged our innovation capabilities to introduce new brands that align with consumer trends.
In our wine and spirits business, as part of our efforts to focus on higher-end brands, improve margins and create operating efficiencies, we have acquired higher-margin, higher-growth wine brands and portfolios of brands, including Meiomi, Prisoner and Charles Smith, and have strategically optimized the value of this business, particularly lower-margin, lower-growth products, with the divestiture of the Canadian wine business and the expected transaction, which was recently announced, to divest a portion of our wine and spirits business. In addition, we have added higher-end brands to our spirits portfolio through the acquisitions of Casa Noble tequila and High West craft whiskeys.
The summary below shows the sales mix of Constellation Brands. It shows the sales values in Dollar millions as well as the relative contribution to total sales for Constellation Brands:
- Beer: 5,202.1 (64.1%)
- Wine: 2,532.5 (31.2%)
- Spirits: 381.4 (4.7%)
In the U.S., we are the leading imported beer company and have eight of the 15 top-selling imported beer brands. Corona Extra is the best-selling imported beer and the sixth best-selling beer overall in the U.S. and Modelo Especial is the second-largest and the fastest-growing major imported beer brand.
Beer brands of Constellation Brands:
- Corona Brand Family
- Corona Extra
- Corona Premier
- Corona Familiar
- Corona Light
- Modelo Brand Family
- Modelo Especial
- Modelo Negra
- Modelo Chelada
- Other Import Brands
- Pacifico
- Victoria
Wine Brands
- 7 Moons
- Black Box
- Mark West
- Robert Mondavi
- Meiomi Ruffino
- Clos du Bois
- Mount Veeder
- Schrader
- Franciscan Estate
- Nobilo
- Simi
- Kim Crawford
- Ravage
- The Dreaming Tree
Wine Portfolio of Brands
- Charles Smith
- Prisoner
Spirits Brands
- Casa Noble
- High West
- SVEDKA Vodka
Overview of Constellation Brands' 1st quarter 2021 earnings report
- Net sales: $1.963 billion (down from $2.097 billion for the same quarter of the previous year)
- Net sales decreased by -6.4% over the last 12 months
- Cost of sales: $975 million (down from $1.068 billion for the same quarter of the previous year)
- Cost of sales decreased by- 8.7% over the last 12 months
- Some margin gain for Constellation Brands as their net sales decreased at a slower rate than their cost of sales
- Net loss of Constellation Brands -:$177.9 million (up from -$245 million for the same quarter of the previous year)
- Diluted earnings per share: -$0.86 (up from -$1.19 per share for the same quarter of the previous year)
- PE ratio of Constellation Brands: As the group is loss making for the 1st quarter of 2021 a PE ratio cannot be calculated
- Dividend declared for the quarter: $0.68
- Dividend yield of Constellation Brands: 1.45%
- Diluted weighted-average shares outstanding: 169.604 million (down from 168.118 million for the same quarter of the previous year)
- Cash and cash equivalents: $302.8 million
- Cash and cash equivalents per share: $1.78
- Cash and cash equivalents makes up 0.94% of Constellation's market capital
- Cash and cash equivalents makes up 1.15% of Constellation's total assets
- We are concerned about the low levels of cash on Constellation's balance sheet and they might start running into cash flow problems if the low cash reserves continue. If this becomes the case the group will either have to issue stock or take on debt to shore up cash reserves, neither of which will be good for stockholders.
- Accounts receivable: $700.5 million
- Accounts receivable makes up 2.67 % of Constellation's total assets
- Inventories: $1.332 billion
- Inventories makes up 5.1% of Constellation's total assets
- Goodwill: $7.684 billion
- Goodwill makes up 29.4% of Constellation's total assets. We are always nervous about goodwill making up such a large chunk of a company's assets. Basically goodwill is the estimated value of the name and reputation of the brands they hold. So if they were to sell Corona for example the group will attach a value of goodwill to Corona and tell the buyer this is how much goodwill is in the brand name. Such valuations are usually very subjective and its easy to manipulate or overinflate if you want to overstate the value of your company's assets.
- Goodwill amounts to $45.30 a Constellation Brands stock
- Stockholders equity of Constellation': $11.377 billion
- Stockholders equity per share for Constellation Brands : $67.10
- So Constellation brands is trading at 2.76 times it stockholders equity per share which is just within the expected range of between 2 and 4 times most companies tend to trade at.
- To put this into perspective the S&P 500 trades at an average price to book value of 3.7. Read more about the S&P 500 here
Constellation Brands' management commentary on their 1st quarter 2021 results
VICTOR, N.Y., April 03, 2020 (GLOBE NEWSWIRE) -- Constellation Brands, Inc. (NYSE: STZ and STZ.B), a leading beverage alcohol company, reported today its fiscal year and first quarter 2021 results and fiscal year 2021 outlook.
"Fiscal 20 represented another excellent year of strong results marked by milestones which include the achievement of record cash flow results and double-digit operating income growth for our iconic beer business. In addition our Wine & Spirits Power Brands and new product introductions fueled growth as our premiumization strategy for this business continues to gain momentum" - Bill Newlands, President and Chief Executive Officer
“Our strong performance drove record cash flow results which we used to reduce debt to our targeted leverage range while returning value to shareholders through dividends and share repurchases. In this time of uncertainty, we believe we have ample liquidity and financial flexibility and remain committed to our investment grade rating. We have significant capacity under our $2 billion revolving credit facility and we plan to carefully manage our debt position over the next 24 months. In addition, we are expecting approximately $850 million in cash upon the close of the Gallo transaction and we remain focused on prudently navigating the challenging operating environment presented by COVID-19.” - Grant Hankinson, Chief Financial Officer
"Fiscal 20 represented another excellent year of strong results marked by milestones which include the achievement of record cash flow results and double-digit operating income growth for our iconic beer business. In addition our Wine & Spirits Power Brands and new product introductions fueled growth as our premiumization strategy for this business continues to gain momentum" - Bill Newlands, President and Chief Executive Officer
“Our strong performance drove record cash flow results which we used to reduce debt to our targeted leverage range while returning value to shareholders through dividends and share repurchases. In this time of uncertainty, we believe we have ample liquidity and financial flexibility and remain committed to our investment grade rating. We have significant capacity under our $2 billion revolving credit facility and we plan to carefully manage our debt position over the next 24 months. In addition, we are expecting approximately $850 million in cash upon the close of the Gallo transaction and we remain focused on prudently navigating the challenging operating environment presented by COVID-19.” - Grant Hankinson, Chief Financial Officer
Related Topics
COVID-19
We have an existing Crisis Management Committee that has been closely monitoring the impact of the virus that causes COVID-19, on our Company and our workforce since January 2020. In March 2020, the World Health Organization (“WHO”) recognized COVID-19 as a pandemic. COVID-19 has severely restricted the level of economic activity around the world. In response to COVID-19, the governments of many countries, states, cities, and other geographic regions took preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forgo their time outside of their homes. Temporary closures of businesses were ordered, and numerous other businesses temporarily closed voluntarily. Further, individuals' ability to travel was curtailed through mandated travel restrictions and may be further limited Constellation Brands, through additional voluntary or mandated closures of travel-related businesses. In the key markets where we sell our products, the beverage alcohol industry has been classified as an essential business.
We have implemented various measures to reduce the spread of the virus including working from home, restricting visitors to our production locations, splitting our production workforces, reducing the on-site production workforce levels, screening workers before they enter facilities, implementing social distancing, and encouraging employees to adhere to prevention measures recommended by the Center for Disease Control (“CDC”) and the WHO. These prevention measures have been effective as evidenced by the minimal number of COVID-19 cases within our workforce. Since our non-production workforce is able to work remotely using various technology tools, we are able to maintain our operations and internal controls over financial reporting and disclosures. COVID-19 containment measures have affected us primarily in the reduction of (i) depletion volume on our products in the on-premise business due to bar and restaurant closures and (ii) shipment volume related to the reduced production activity at our major breweries in Mexico. The on-premise business has historically been about 10% to 15% of our depletion volume for beer, wine, and spirits. Various U.S. states are in the process of reopening their economies including bars and restaurants which we expect to begin increasing our on-premise depletion volumes. The decrease in the on-premise business was partially offset by an increase in off-premise, including eCommerce, which has increased since March 2020. Currently, our breweries, wineries, and bottling facilities are operating at close to normal capacity. In June 2020, beer production at our major breweries in Mexico returned to normal levels. We expect the impacts from the COVID-19 related slowdown of beer production in Mexico will extend into the second quarter of fiscal 2021. We have recently begun reopening our hospitality, tasting rooms, retail, restaurants, and other non-essential public facilities.
Our supply chains and distribution channels have not been materially impacted and we are working to rebuild our supply of products to meet forecasted demand. As a result of decreased production levels, we are closely monitoring distributor inventory to optimize stock levels. Product inventories are expected to return to more normal levels during the third quarter of fiscal 2021. We have also been impacted by the containment actions imposed by the Mexican government, including a temporary halt on expansion activities at the Obregon Brewery. In June 2020, we resumed construction on a planned additional five million hectoliters expansion. Expansion is expected to be completed by the end of Fiscal 2021, although any further containment actions associated with COVID-19 may alter that timeline. We are not able to estimate the long-term impact of COVID-19 on our business, financial condition, results of operations, and/or cash flow. We believe we have sufficient liquidity available from operating cash flow, cash on hand, and availability under our $2.0 billion revolving credit facility. We expect to have continued access to capital markets and to continue to return value to shareholders
PRE COVID-19 BUSINESS TARGET ASSUMPTIONS FOR FISCAL 2021
Fiscal 2021 EPS guidance is unavailable at this time due to potential impacts on the business from COVID-19. However, the table below sets forth management’s pre-COVID-19 business expectations for fiscal 2021 compared to fiscal 2020 actual results.
These target assumptions do not reflect future changes in the fair value of the company’s investments in Canopy’s warrants and convertible debt securities. Additionally, the company continues to evaluate the future potential equity earnings impact from the Canopy equity method investment and related activities and, as such, these items have been excluded from the target assumptions noted above.
For target purposes, the revised Wine and Spirits transaction to sell a portion of the business to E. & J. Gallo Winery (“Gallo”) (the “Revised Wine and Spirits Transaction”) is now assumed to close around the end of Q1 fiscal 2021 and the separate, but related, agreement to divest the Nobilo Wine brand to Gallo (the “Nobilo Transaction”) is assumed to close by the end of Q2 fiscal 2021. In addition, the company intends to divest the Paul Masson Grande Amber Brandy brand and the concentrate business in separate transactions that are assumed to close around the end of Q1 fiscal 2021 and plans to retain the Cooks and J. Roget brands. The target assumptions exclude any additional gain or loss from these transactions and proceeds are expected to be used primarily for the repayment of debt.
We have an existing Crisis Management Committee that has been closely monitoring the impact of the virus that causes COVID-19, on our Company and our workforce since January 2020. In March 2020, the World Health Organization (“WHO”) recognized COVID-19 as a pandemic. COVID-19 has severely restricted the level of economic activity around the world. In response to COVID-19, the governments of many countries, states, cities, and other geographic regions took preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forgo their time outside of their homes. Temporary closures of businesses were ordered, and numerous other businesses temporarily closed voluntarily. Further, individuals' ability to travel was curtailed through mandated travel restrictions and may be further limited Constellation Brands, through additional voluntary or mandated closures of travel-related businesses. In the key markets where we sell our products, the beverage alcohol industry has been classified as an essential business.
We have implemented various measures to reduce the spread of the virus including working from home, restricting visitors to our production locations, splitting our production workforces, reducing the on-site production workforce levels, screening workers before they enter facilities, implementing social distancing, and encouraging employees to adhere to prevention measures recommended by the Center for Disease Control (“CDC”) and the WHO. These prevention measures have been effective as evidenced by the minimal number of COVID-19 cases within our workforce. Since our non-production workforce is able to work remotely using various technology tools, we are able to maintain our operations and internal controls over financial reporting and disclosures. COVID-19 containment measures have affected us primarily in the reduction of (i) depletion volume on our products in the on-premise business due to bar and restaurant closures and (ii) shipment volume related to the reduced production activity at our major breweries in Mexico. The on-premise business has historically been about 10% to 15% of our depletion volume for beer, wine, and spirits. Various U.S. states are in the process of reopening their economies including bars and restaurants which we expect to begin increasing our on-premise depletion volumes. The decrease in the on-premise business was partially offset by an increase in off-premise, including eCommerce, which has increased since March 2020. Currently, our breweries, wineries, and bottling facilities are operating at close to normal capacity. In June 2020, beer production at our major breweries in Mexico returned to normal levels. We expect the impacts from the COVID-19 related slowdown of beer production in Mexico will extend into the second quarter of fiscal 2021. We have recently begun reopening our hospitality, tasting rooms, retail, restaurants, and other non-essential public facilities.
Our supply chains and distribution channels have not been materially impacted and we are working to rebuild our supply of products to meet forecasted demand. As a result of decreased production levels, we are closely monitoring distributor inventory to optimize stock levels. Product inventories are expected to return to more normal levels during the third quarter of fiscal 2021. We have also been impacted by the containment actions imposed by the Mexican government, including a temporary halt on expansion activities at the Obregon Brewery. In June 2020, we resumed construction on a planned additional five million hectoliters expansion. Expansion is expected to be completed by the end of Fiscal 2021, although any further containment actions associated with COVID-19 may alter that timeline. We are not able to estimate the long-term impact of COVID-19 on our business, financial condition, results of operations, and/or cash flow. We believe we have sufficient liquidity available from operating cash flow, cash on hand, and availability under our $2.0 billion revolving credit facility. We expect to have continued access to capital markets and to continue to return value to shareholders
PRE COVID-19 BUSINESS TARGET ASSUMPTIONS FOR FISCAL 2021
Fiscal 2021 EPS guidance is unavailable at this time due to potential impacts on the business from COVID-19. However, the table below sets forth management’s pre-COVID-19 business expectations for fiscal 2021 compared to fiscal 2020 actual results.
- Beer: net sales growth of 7%-8% including the impact of the Ballast Point divestiture and organic net sales growth of 8%-10%;
- operating margin of 39.5%-40.0%
- Wine and Spirits: net sales and operating income decline of approximately 30% to 35%, respectively; retained Power Brand portfolio post divestiture transactions expected to grow 2%-4%
- Interest expense: approximately $385 - $395 million
- Tax rate: approximately 18%
- Weighted average diluted shares outstanding: approximately 195 million; assumes no share repurchases for fiscal 2021
- Operating cash flow: $2.3 - $2.5 billion
These target assumptions do not reflect future changes in the fair value of the company’s investments in Canopy’s warrants and convertible debt securities. Additionally, the company continues to evaluate the future potential equity earnings impact from the Canopy equity method investment and related activities and, as such, these items have been excluded from the target assumptions noted above.
For target purposes, the revised Wine and Spirits transaction to sell a portion of the business to E. & J. Gallo Winery (“Gallo”) (the “Revised Wine and Spirits Transaction”) is now assumed to close around the end of Q1 fiscal 2021 and the separate, but related, agreement to divest the Nobilo Wine brand to Gallo (the “Nobilo Transaction”) is assumed to close by the end of Q2 fiscal 2021. In addition, the company intends to divest the Paul Masson Grande Amber Brandy brand and the concentrate business in separate transactions that are assumed to close around the end of Q1 fiscal 2021 and plans to retain the Cooks and J. Roget brands. The target assumptions exclude any additional gain or loss from these transactions and proceeds are expected to be used primarily for the repayment of debt.
Constellation Brands (NYSE: STZ) stock price history
The image below, obtained from Google, shows the stock price history of Constellation Brands (NYSE: STZ) for the last 5 years. And it's been a very good time for Constellation Brands stockholders. 5 years ago the stock was trading at around $116 a stock and its currently trading at $185.88 a stock. That's a strong return of 60.2% provided by Constellation Brands over the last 5 years.
The stock of Constellation Brands is trading at a lot closer to its 52 week high of $212 than it is to its 52 week low of $104.28 which to us is a clear indication that the short term sentiment and momentum of Constellation Brands stock is very positive at this point in time
The stock of Constellation Brands is trading at a lot closer to its 52 week high of $212 than it is to its 52 week low of $104.28 which to us is a clear indication that the short term sentiment and momentum of Constellation Brands stock is very positive at this point in time
Recent coverage of Constellation Brands
The extract below shows some of the latest coverage on Constellation Brands obtained from Equities.com
Among the biggest risers on the S&P 500 on Wednesday July 01 was Constellation Brands Inc. ($STZ), popping some 6.25% to a price of $185.88 a share with some 3.45 million shares trading hands. Starting the day trading at $182.93, Constellation Brands Inc. reached an intraday high of $189.92 and hit intraday lows of $182.04. Shares gained $10.93 apiece by day’s end. Over the last 90 days, the stock’s average daily volume has been n/a of its 192.94 million share total float. Today’s action puts the stock’s 50-day SMA at $n/a and 200-day SMA at $n/a with a 52-week range of $104.28 to $212.00.
Constellation Brands Inc is the multi-category alcohol supplier in the U.S. The business is anchored by a portfolio of Mexican beer trademarks, including Corona and Modelo, for which it acquired exclusive and perpetual U.S. ownership from AB InBev. The latter had to divest these rights due to antitrust mandates as it consummated its 2013 acquisition of dominant Mexican brewer, Grupo Modelo. Constellation's wine/spirits business has been in flux, and it is currently divesting several lower-margin assets, including myriad wine brands and its Ballast Point craft beer brand. The firm imports most products after manufacturing them abroad, going to market through independent wholesalers. It owns 37% of Canopy Growth, a leading provider of medicinal and recreationally legal cannabis products.
Read the full article here
Among the biggest risers on the S&P 500 on Wednesday July 01 was Constellation Brands Inc. ($STZ), popping some 6.25% to a price of $185.88 a share with some 3.45 million shares trading hands. Starting the day trading at $182.93, Constellation Brands Inc. reached an intraday high of $189.92 and hit intraday lows of $182.04. Shares gained $10.93 apiece by day’s end. Over the last 90 days, the stock’s average daily volume has been n/a of its 192.94 million share total float. Today’s action puts the stock’s 50-day SMA at $n/a and 200-day SMA at $n/a with a 52-week range of $104.28 to $212.00.
Constellation Brands Inc is the multi-category alcohol supplier in the U.S. The business is anchored by a portfolio of Mexican beer trademarks, including Corona and Modelo, for which it acquired exclusive and perpetual U.S. ownership from AB InBev. The latter had to divest these rights due to antitrust mandates as it consummated its 2013 acquisition of dominant Mexican brewer, Grupo Modelo. Constellation's wine/spirits business has been in flux, and it is currently divesting several lower-margin assets, including myriad wine brands and its Ballast Point craft beer brand. The firm imports most products after manufacturing them abroad, going to market through independent wholesalers. It owns 37% of Canopy Growth, a leading provider of medicinal and recreationally legal cannabis products.
Read the full article here
Constellation Brands (NYSE: STZ) latest stock valuation
So what is Constellation Brands (NYSE: STZ) stock worth based on the release of their latest earnings report and fiscal guidance provide? Based on their earnings report and the guidance provided our valuation model provides a target price (full value price) for Constellation Brands of $203.20 a stock (down slightly from our 4th quarter 2020 earnings report valuation of Constellation Brands). We therefore believe that the stock is undervalued at its price of $185.88
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $203.20. So a good entry point into Constellation Brands stock would be at $182.90 or below.
We expect the stock of Constellation brands to kick up from current levels to levels closer to our target price in coming weeks and months.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $203.20. So a good entry point into Constellation Brands stock would be at $182.90 or below.
We expect the stock of Constellation brands to kick up from current levels to levels closer to our target price in coming weeks and months.
Next earnings release for Constellation Brands
It is expected that Constellation Brands (NYSE: STZ) will release their 2nd quarter 2021 earnings report in early October 2020