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

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