Constellation Brands (NYSE:STZ) has been on a mission to jettison less profitable businesses and focus on a smaller portfolio of premium wine and alcohol brands that include Robert Mondavi, Blackstone, SVEDKA Vodka, and a distribution joint venture with Modelo to sell Corona in the U.S. Reported profits are coming in strong, but there is uncertainty over how the remaining businesses will grow over the long haul.
TUTORIAL: Economic Indicators To Know

Fourth Quarter Recap
Reported net sales, which subtract out excise taxes, rose a most 0.9% to $715.3 million. North American sales made up 81.1% of the total and jumped 17%. However, international sales, which consist of the Australian wine and European wine and cider businesses, fell 37% to account for the rest of the top line and were sold off as part of the company's efforts to "further premiumize" its portfolio of alcohol brands. Earnings from the Modelo joint venture increased 18% to $48.6 million. Anheuser-Busch InBev (NYSE:BUD) owns a 50% stake in Modelo.

Lower product costs pushed gross margins up 14.2% to $254 million. SG&A costs fell an impressive 13.2% while much lower impairment and restructuring charges pushed operating income up to $102.9 million after a loss in last year's quarter. Net income reached $279.8 million, or $1.32 per diluted share. On a recurring basis, the company estimated earnings rose 29.6% to 35 cents per share to come in ahead of analyst projections.

Full Year Review
Reported sales fell a modest 1% to $3.3 billion. The company estimated organic sales growth was 5%. Reported net income jumped to $559.5 million from $99.3 million last year. This worked out to $2.62 per diluted share. On a recurring basis, the company estimated net income was $408 million, or $1.91 per diluted share for year-over-year growth of 14%. Free cash flow came in at $530 million, or approximately $2.48 per diluted share.

Outlook
Constellation currently expects earnings between $1.90 and $2 per diluted share and free cash flow between $600 million and $650 million, or between $2.81 and $3.04 per diluted share, based on the current year-end share count.

Bottom Line
With a current share price of just under $22, Constellation's earnings and free cash flow multiples look compellingly low. The forward free cash flow multiple is 7.1, if the company hits the high end of its guidance. However, these multiples could stay low until management can prove it can grow sales organically and turn this into sustainable profit growth.

Wine sales could continue to be flat as consumers don't demonstrate strong brand loyalty, though Chilean rival Vina Concha y Toro (NYSE:VCO) has managed to post steady growth over the past decade. And SVEDKA Vodka competes in a crowded market, with offerings from Fortune Brands' (NYSE:FO) spirits division and Central European Distribution Corp. (Nasdaq:CEDC), which owns a number of vodka brands that do well internationally. Corona sales have also cooled in the U.S. in recent years, though the joint venture continues to be very profitable to Constellation. (For related reading, also check out Beeronomics: Factors Affecting Your Pint.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  6. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  7. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  8. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
RELATED TERMS
  1. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  4. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  5. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  6. Impact investing

RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!