Earnings Preview: Constellation - Analyst Blog
02 April 2012 - 10:15AM
Zacks
Constellation Brands
Inc. (STZ), the largest wine company in the world, is
scheduled to release its fourth-quarter 2012 results before the
opening bell on Thursday, April 5, 2012.
The current Zacks Consensus
Estimate for earnings for the quarter is 38 cents a share. For the
fourth quarter, revenue is expected at $633 million, according to
the Zacks Consensus Estimate.
Third-Quarter
Recap
Constellation Brands posted
earnings of 50 cents per share for third-quarter 2012, missing the
Zacks Consensus Estimate of 52 cents and declining over 24% from
the prior-period level of 66 cents.
Sales in the quarter dropped 27% to
$701 million from the year-ago quarter. The decline was due to the
divestitures of the Australian and U.K. wine businesses. Sales also
missed the Zacks Consensus forecast of $718.0 million.
The company’s organic constant
currency net sales decreased 8% due to a decline in volume that
stemmed from the overlap of distributor inventory build in the
third quarter of fiscal 2011 as part of the U.S. distributor
consolidation initiative.
Fiscal 2012
Outlook
The company expects its fiscal 2012
adjusted EPS in the band of $2.00 to $2.10 compared with $1.91 in
fiscal 2011. The guidance factors in an interest expense
expectation in the range of approximately $180–$185 million, an
approximate tax rate of 27% and weighted average diluted shares
outstanding of approximately 209 million.
On a reported basis, the company
expects EPS in the range of $1.96-$2.06 compared with $2.62 in
fiscal 2011.
Constellation Brands’ third-quarter
release points to a $100 million growth in its free cash flow
target for fiscal 2012, bringing the guidance to a range of $700
million to $750 million.
Zacks
Consensus
The analysts covered by Zacks
expect Constellation Brands to post fourth-quarter 2012 earnings of
38 cents a share, higher than 35 cents registered in the prior-year
quarter. Currently, the Zacks Consensus Estimate ranges between 34
cents and 42 cents a share.
For fiscal 2012, the Zacks
Consensus Estimate stood at $2.05 per share, higher than the
previous fiscal earnings of $1.91. The current Zacks Consensus
Estimate for the fiscal ranges between $2.00 and $2.09 per
share.
Agreement of
Estimate
Over the last 7 and 30 days, no
movement in estimates has been noticed either for the fourth
quarter or for fiscal 2012.
Magnitude of Estimate
Revisions
With no earnings revisions by the
analysts over the last 30 days, the Zacks Consensus Estimates for
the fourth quarter of 2012 and fiscal 2012 remained unchanged at 38
cents and $2.05 per share, respectively.
Surprise
History
With respect to earnings surprises,
Constellation Brands has topped the Zacks Consensus Estimate over
the last four quarters in the range of flat to 34.6%. The average
remained at positive 18.9%, suggesting that Constellation Brands
has surpassed the Zacks Consensus Estimate by that measure in the
trailing four quarters.
Our
Take
We believe that the company’s
strategic initiative of expanding its foothold in the U.S wine
industry along with focus on brand building and promotion will
accelerate its growth opportunities while strengthening its market
position. Moreover, in an effort to generate strong margins,
Constellation Brands is also focusing on higher priced segments
across all key categories.
Moreover, the company’srecent stake
sale in the Australian and U.K. businesses will help it to focus on
organic growth of its brand portfolio, margin improvement, return
on invested capital and free cash flow. During the last two years,
the Australian and U.K. businesses were facing challenging market
conditions, which were no longer consistent with Constellation
Brands’ business strategy.
However, distilled spirits are
subject to excise tax in various countries. Rising fiscal pressure
in the U.S., European and many emerging markets may lead to
increasing risk of a potential excise tax on spirits by governments
of respective countries. We believe any excise tax increase in
future may have an adverse effect on Constellation Brands’
financial performance.
Above all, the company faces
intense competition from other well-established players in the
industry, including Beam Inc. (BEAM),
Brown-Forman Corporation (BF.B) and Diageo
plc (DEO). Moreover, Constellation Brands also encounters
competition from local and regional players in the respective
countries. Consequently, this may dent the company’s future
operating performance.
Currently, Constellation Brands
holds a Zacks #2 Rank, implying a short-term 'Buy' rating on the
stock. However, in the long term, we have a 'Neutral'
recommendation on the stock.
BEAM INC (BEAM): Free Stock Analysis Report
BROWN FORMAN B (BF.B): Free Stock Analysis Report
DIAGEO PLC-ADR (DEO): Free Stock Analysis Report
CONSTELLATN BRD (STZ): Free Stock Analysis Report
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