Constellation Brands posted strong results for the second quarter of fiscal 2022, primarily driven by its brewery division. Beer shipments in the last quarter increased by 12% yoy primarily due to the strong dynamics of the Modelo division, whose sales increased by 16%, while the Corona division, which accounts for 11% of the beer portfolio, showed more modest growth rate at the level of 3%. Constellation Brands management improved its beer division revenue forecast by 2H21 from 7-9% to 9-11%. Revenues from the sale of wines and spirits increased by 15% year-on-year. Expectations for the division’s revenue growth in 3Q22 remain high on the back of the expansion of the product line, including wine seltzer, as well as the geographic expansion of the SVEDKA RTD division. Due to worsening sales in the “strong seltzers” category, the company made a one-time write-off of $ 80 mn and slightly downgraded its forecasts for the next quarter. The management plans to reduce the focus on this segment while, according to the press release, Constellation Brands’ medium-term sales growth rates are not based on the dynamics of the “strong seltzer” category.
We maintain our estimate of the fair value of the shares at $ 275. We are adjusting our model towards higher beer sales forecasts and expect net sales to grow by 10% in fiscal 2022, as well as a 5% increase in operating profit in this segment. In addition, based on strong 2Q22 results and a $ 400mn additional share buyback to be completed by the end of fiscal 2022 under the $ 1bn program, we are raising our estimate of Constellation’s net EPS excluding Canopy to $ 10.27 in 2022 and up to $ 12.07 in 2023. In our opinion, Constellation’s capitalization growth will be supported by the following operating factors. First, the acquisition of the Crown Imports business was fundamental to the company’s business profile. The deal continues to provide synergies and dividends. Secondly, we like the company’s high share in the import beer market, since we believe that local producers will gradually lose their market positions. Finally, sales in the main wine category are beginning to show improvements, reflecting the benefits of rationalizing SKUs and increasing M&A. Constellation Brands has announced a $ 0.76 quarterly dividend. Payments will begin on November 19 for shareholders who were on the register as of November 5.
Constellation Brands is the #2 player in U.S. wine and is the category leader in imported beer in the U.S. Having acquired the rights to the Modelo beer portfolio in the U.S., as well as manufacturing assets in 2013, the company’s earnings base has meaningfully transformed, as beer now accounts for more than 75% of STZ’s EBIT. The company’s leading beer brands include Corona Extra, Corona Light, and Modelo Especial. Meanwhile, STZ’s wine portfolio boasts well over 100 brands, with the company’s biggest including Woodbridge by Robert Mondavi, Clos du Bois, and Kim Crawford. The company also has a small share in the U.S. spirits category, via the Svedka vodka brand.