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Constellation Brands’ Q2 Results Blow Past Estimates

Constellation Brands reported second-quarter results, with net income rising to $1.15 billion, or $5.87 per share, for the three months that ended on August 31. This is up from $1.6 million, or $2.49 per share, from the year-earlier period. The analyst consensus was $2.61 a share.

The 10.1% rise in net sales to $2.30 billion was driven by demand for Corona and Modelo beers during the summer quarter. Cowen Managing Director Vivien Azer, in a note to investors before the market open, said the beer business operating margin of 41.3% was up more than 10 basis points year-on-year as pricing offset increased transportation costs.

Wine and spirits saw net sales growth of 9.3%, the company said. The segment benefited from 8.8% volume growth primarily due to timing, as shipments outpaced depletion volume to ensure the wine and spirits portfolio is well-positioned heading into the holiday selling season.

Benefit expected to reverse

“Most of the shipment timing benefit is expected to reverse in the third quarter,” Constellation Brands acknowledged. It added that the wine and spirits business operating margin decreased 20 basis points to 26.1% as the cost of goods rose, driven primarily by increased grape prices, transportation and marketing.

Constellation Brands continues to concentrate on higher-priced wine offerings above $11 a bottle led by Meiomi, Kim Crawford and Prisoner brands.

The beverage alcohol giant expects beer net sales and operating income growth of 9%–11%; and wine and spirits net sales and operating growth to be in the range of 2%–4%. It raised its expected earnings per share for the 2019 fiscal year to $9.60–$9.75 vs. its previous $9.40–$9.70.

None of the figures given factors in Constellation Brands’ investment in Canadian cannabis company Canopy Growth as that deal is expected to close at the end of October.

Wells Fargo Senior Analyst Bonnie Herzog reiterated her outperform rating on the shares, noting the company “is clearly managing transport/marketing cost headwinds adeptly while continuing to drive significant growth in the high-end segment of beer/wine. Robust premium beer trends and market share gains in both beer/wine give us confidence that STZ’s growth engines are well intact.”

Constellation Brands’ shares were up 4.3% at $219.94 in midday trading.