Things just keep getting better for Constellation Brands (NYSE: STZ). The alcoholic beverage giant recently wrapped up its fifth straight year of 20% or better earnings growth as its portfolio, which tilts toward premium beer, wine, and spirits, soaked up market share.
CEO Rob Sands and his executive team held a conference call with analysts in late March to put those fiscal year results in perspective and explain why they see a long runway for growth ahead, even if profit gains will be slower over at least the next year.
Continue Reading Below
Here are a few highlights from that discussion.
Beer leading the way
The broader beer industry was stagnant in the U.S. last year, but Constellation Brands' premium import brands had no trouble achieving market-thumping growth.
Corona was a standout, gaining market share every month of the year to make it the only top beer brand to grow last year. The Modelo franchise was a winner, too, having boosted consumption by 17% to pass the 100-million case milestone last year. Overall, the beer segment grew 10% while boosting profit margin by 3.2 percentage points to 39.5% of sales.
Progress in wine and spirits
Constellation Brands was affected by a slowdown in the wine industry, but the division still expanded by 5% for the year. Operating margin rose to 27.4% of sales from 25.8% because of management's progress at shifting the portfolio toward higher-margin products. Newly acquired Schrader Cellars, for example, has popular wines that sell for $225 per bottle, and a new brand called Deranged is being marketed at $100 per bottle.
The company achieved its beer capacity expansion plans for the year, and its main Mexican breweries can produce 31.5 million hectoliters per year today. Yet as demand kept rising in 2017, it became clear that more growth was needed. Thus, executives plan to spend $900 million on capacity projects in 2018 to help bring output up to 34 million hectoliters by 2020, and 44 million hectoliters by 2023.
Raising marketing spending
Constellation Brands is forecasting more modest profitability growth this year as the company ramps up marketing spending to support its best franchises. While both the beer and wine and spirits businesses should boost profit margins, overall operating income is projected to grow at the same rate as sales, or roughly 10%.
The 10% earnings increase Constellation Brands forecast in fiscal 2019 will mark the first time in six years that the company hasn't improved profits by at least 20%. That growth slowdown is partly a consequence of its huge gains since 2013, but also a result of investments into the business.
The company plans to aggressively expand its distribution footprint this year while making big portfolio expansions, like taking Corona Premier national, the first national Corona extension in over 25 years.
10 stocks we like better than Constellation BrandsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Constellation Brands wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of March 5, 2018