Constellation Brands Q1 2024 slides: Beer segment drives growth amid inflationary pressures

Constellation Brands, Inc. (NYSE:STZ) reported solid first-quarter fiscal year 2024 results, with the beer segment continuing to drive overall performance while the wine and spirits business faced headwinds. The company’s presentation, dated June 30, 2023, revealed a 6% increase in consolidated net sales to $2.5 billion, though reported earnings per share declined significantly due to losses from unconsolidated investments.

Quarterly Performance Highlights

Constellation’s Q1 FY24 results showed mixed performance across segments, with beer business strength offsetting challenges in the wine and spirits division. Consolidated net sales increased 6% to $2.5 billion, while comparable operating income rose 4% to $827 million. However, reported operating income declined 6% to $765 million.

The company’s comparable earnings per share excluding Canopy Growth investment reached $3.04, representing a 5% increase year-over-year, while reported EPS fell 64% to $0.74, primarily due to losses from unconsolidated investments.

As shown in the comprehensive financial overview below, the beer segment delivered strong growth while wine and spirits faced volume challenges:

The company highlighted four key takeaways from the quarter, emphasizing the beer business’s continued strength, the wine and spirits segment’s relative outperformance in higher-end categories, progress on debt reduction, and new sustainability targets:

Beer Segment Analysis

The beer business remained the primary growth driver for Constellation, with net sales increasing 11% to $2.1 billion and operating income rising 5% to $798 million. This performance was fueled by strong shipment growth of 7.5% and depletion growth of 5.5%.

Key beer brands showed solid performance, with Modelo Especial growing approximately 5%, Corona Extra up 1%, Pacifico increasing 15%, and Modelo Chelada brands surging 40%. The company’s innovations also gained market share, with Modelo Ore and Corona Non-Alcoholic among the top 10 share gainers in their respective categories.

The following chart illustrates the beer segment’s performance drivers for Q1 FY24:

Despite strong top-line growth, the beer segment faced margin pressures from inflationary costs. The company provided a detailed breakdown of these pressures, noting that packaging and raw materials (55-60% of import portion total COGS) experienced high-single-digit inflation:

Wine & Spirits Segment Analysis

The wine and spirits business faced more significant challenges, with reported net sales declining 10% to $416 million. On an organic basis, excluding divested brands, net sales decreased 6%. Operating income fell 13% to $79 million, though this represented a 2% increase when adjusted for divested brands.

Premium wine brands showed mixed results, with Meiomi declining approximately 5%, Kim Crawford flat, and The Prisoner Wine Company down 7%. However, craft spirits brands delivered impressive 40% growth, highlighting the company’s success in the spirits category.

The following chart details the wine and spirits segment’s performance:

Strategic Initiatives & Outlook

Constellation Brands continued to execute against its strategic initiatives, focusing on building powerful brands, developing consumer-led innovations, disciplined capital deployment, and sustainability efforts. The company made progress on capacity expansion, with the Obregon 5M HL expansion completed in Q1 and the Nava production line on track for Q4.

As illustrated in the strategic initiatives overview below, the company is advancing on multiple fronts:

For the full fiscal year 2024, Constellation maintained its outlook, projecting beer net sales growth of 7-9% and wine and spirits organic net sales between -0.5% and +0.5%. The company expects operating cash flow of $2.4-2.6 billion and free cash flow of $1.2-1.3 billion.

The comprehensive outlook for fiscal year 2024 is detailed in the following slide:

Financial Position

Constellation continued to strengthen its balance sheet, reducing its net leverage ratio to approximately 3.5x, moving toward its target of around 3.0x. The company generated $665 million in operating cash flow and $388 million in free cash flow during the quarter, demonstrating strong cash generation capabilities despite inflationary pressures.

Capital expenditures totaled $277 million in Q1, with significant investments in capacity expansion to support future growth, particularly in the beer segment. For the full year, the company expects capital expenditures of $1.2-1.3 billion, with approximately $1 billion allocated to the beer business.

The company’s condensed consolidated balance sheet shows total assets of $24.8 billion as of May 31, 2023:

Constellation’s cash flow statement demonstrates solid operational cash generation, with $665.4 million in net cash provided by operating activities:

In conclusion, Constellation Brands’ Q1 FY24 results highlight the continued strength of its beer portfolio, which remains the primary growth driver for the company. While the wine and spirits segment faces challenges, the company’s focus on premium brands and operational efficiency, combined with strategic capacity investments, positions it well for future growth. However, investors should monitor inflationary pressures and their potential impact on margins, as well as the performance of the wine and spirits segment in coming quarters.

Full presentation:

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.