Constellation Brands (STZ) to Keep Earnings Beat Trend in Q3

Constellation Brands, Inc. STZ is scheduled to release third-quarter fiscal 2019 results on Jan 9. Notably, this leading wine company reported positive earnings surprise of 11.2% in the last reported quarter. Furthermore, it delivered average positive earnings surprise of 4.6% in the trailing four quarters, wherein it recorded beat in three quarters.

The Zacks Consensus Estimate for earnings of $2.04 per share for the fiscal third quarter declined by a penny in the last 30 days. However, it reflects year-over-year growth of 2% from the prior-year quarter.

Factors at Play

Constellation Brands has been displaying strength, which is visible in its consistent earnings record and strong beer business. Further, the company’s robust business growth plans, including its $5-billion investment in Canopy Growth (CGC), provide lucrative opportunities for the long term.

Strength in Constellation Brands’ beer business has been a key growth driver for the past many years. Despite the softness in the U.S. beer market, the company’s beer business sales improved 10.5% in second-quarter fiscal 2019. Notably, its beer business was the top share gainer in the U.S. beer market in the fiscal second quarter, courtesy of gains from Corona and Modelo Especial brands.

Additionally, Constellation Brands’ consistent focus on brand building and initiatives to include new products are the key revenue drivers for the stock. Owing to its strategic endeavors, the company is witnessing increasing market share, especially in the U.S. beer category. Moreover, it is bringing innovations and improving its operational activities. It is focused on enhancing points of distribution at retail and effectively executing its merchandising initiatives to boost sales. Moreover, investments in digital enablement for e-commerce initiatives and the new ERP platform as part of the ‘Fit for Growth’ initiative bode well.

Constellation Brands’ bullish outlook for the fiscal year indicates that the company is likely to report strong results in the fiscal third quarter. For fiscal 2019, it envisions adjusted earnings per share of $9.60-$9.75. For the beer segment, management continues to expect high-single-digit volume growth as well as 9-11% net sales and operating income growth in fiscal 2019. Moreover, sales and operating income for the wine and spirits segment is likely to improve 2-4%.

Notably, Zacks Consensus Estimate for revenues pegs $1.91 billion for the to-be-reported quarter, up 6.2% year over year.

However, Constellation Brands’ soft operating margins, driven by higher transportation costs coupled with increased marketing expenses at both beer and wine segments, remain a threat to overall profitability. Stiff competition, higher debt position and taxes remain added concerns. These have led the company’s stock to be volatile of late.

Constellation Brands has decreased 18.8% in the past month, wider than the industry’s decline of 9.9%.

What the Zacks Model Predicts

Our proven model shows that Constellation Brands is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Constellation Brands currently has a Zacks Rank #3 and an Earnings ESP of 0.63%, which make earnings surprise prediction conclusive.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these too have the right combination to deliver an earnings beat:

Procter & Gamble Company PG has an Earnings ESP of +0.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tractor Supply Company TSCO has an Earnings ESP of +1.54% and a Zacks Rank #2.

Fastenal Company FAST has an Earnings ESP of +0.83% and a Zacks Rank #2.

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