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.

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. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Trading Center