STZ - Constellation Brands slips as analysts remain cautious on beer trends Canopy overhang

Constellation Brands ( NYSE: STZ ) shares slid on Thursday as concerns on misplaced investments and depletion growth overshadowed an earnings beat.

For the company’s fiscal second quarter, $3.17 in adjusted EPS and $2.66B in revenue exceeded expectations by $0.36 and $150M, respectively. Strength in the beer business driven by double-digit sales growth in Modelo, Pacifico, and Corona brands were credited with the strong results. Margins also exceeded expectations at 51.7% as compared to a 51.2% consensus.

"We delivered another quarter of strong business performance. Our core beer brands, ModeloEspecial and Corona Extra, continue  to outshine the market, and our next wave brands, Pacifico and Modelo Chelada, are achieving strong double-digit growth,” CEO Bill Newlands commented. “The benefits of our Wine and Spirits strategy are taking hold, as our higher-end brands continue to resonate with the consumer."

Based upon the strong results, management raised full year forecasts for EPS to a range of $11.20 to $11.60 from prior $11.20 to $11.50, well above the Wall Street consensus of $11.05.

Still, analysts along the Street were not entirely convinced by the results, pointing to the relatively modest guidance hike on the upper-end only as a move to be wary of. Further, the 9% depletion growth posted by the beverage giant was viewed as potentially soft.

“While this quarter brought a big beat on both beer revenue & profit growth, we worry that expectations for depletions had moved too high such that the 9% read will be seen as light,” Barclays analyst Lauren Lieberman advised clients.

Further, a $1.06B impairment charge stemming from the company’s investment in Canopy Growth Corporation ( CGC ) was cited as a factor dimming enthusiasm for the earnings results.

“While many investors we speak to already assign no value to this investment, this impairment acts as a reminder of past capital allocation errors,” Bernstein analyst Nadine Sarwat commented.

Shares of Constellation Brands ( STZ ) slid over 2% towards the midway point of Thursday’s trading.

Despite some cautious commentary, Wall Street remains broadly bullish on Constellation Brands .

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