‘We like Constellation Brands’ outsized exposure to imported beer’: Analyst

By Ben BOUCKLEY contact

- Last updated on GMT

‘We like Constellation's outsized exposure to imported beer’: Analyst

Related tags: Grupo modelo

Cowen and Company analyst Vivien Azer says her company likes Constellation Brands’ ‘outsized’ exposure to imported beer and expects that category to win more share from non-craft domestic brands in 2015.

Looking ahead to tomorrow when Constellation will report its Q3 results for fiscal year 2015, Azer reiterated the fact that the company’s full takeover of Crown Imports (as a consequence of Anheuser-Busch’s purchase of Grupo Modelo) was “truly transformative for the company, and should continue to pay dividends as the company’s EPS growth trajectory has meaningfully changed”.

For the non-investors among us, EPS is an acronym for ‘Earnings Per Share’ – which serves an indicator of a company’s profitability, calculated by dividing net income by average outstanding shares over a reporting period.

Import beer boom swells earnings

“We like the company’s outsized exposure to imported beer, a category we expect will continue to take share from non-craft domestics,”​ Azer wrote.

Beer now accounts for 50%+ of Constellation’s Earnings Before Interest and Tax (EBIT) and its top brands – all Mexican import – include Corona Extra, Corona Light and Modelo Especial.

“And while the wine category remains challenging, Constellation is competing from a strong No.2 position,”​ she added. Here brands include Kim Crawford, Clos du Bois and Woodbridge by Robert Mondavi.

As to what we might expect tomorrow, Azer predicts net sales growth of circa. 7% fuelled by beer at 11%s – due to ‘robust Nielsen trends’ – with wine sales up 4%.

‘Strong growth for Corona Extra and Modelo Especial’

“Nielsen data continues to impress. The most recent release (which combines xAOC* and C-store) shows implied Q315 dollar and volume sales growth of 13.6% and 11% respectively,”​ Azer wrote.

“Strong growth in Corona Extra and Modelo Especial continue to highlight the popularity of imports and Constellation’s competitive advantage within the category,”​ she added.

Cowen and Company says it is more cautious on Constellation’s wine division, and is looking for 4% net sales growth in Q3 despite its wariness of ‘softness’ in Nielsen channels.

“The most recent Nielsen release (combined xAOC and C-store) shows implied 3Q15 dollar and volume sales growth of 2.2% and 0.4% respectively,”​ Azer wrote.

*xAOC: National cross-outlet markets

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