Analysis - Constellation Brands settles in to brewing role
Constellation is now the third-biggest operator in the US beer market
It would have been easy to get carried away with Constellation Brands' third-quarter results yesterday.
But, headlines that trumpeted a doubling of quarterly profits perhaps failed to fully allow for the effect of the Crown Imports takeover in June that bounced Constellation from being a wine and spirits specialist into becoming the third-biggest brewer in the US market overnight.
When big deals skew results - something that Constellation is all too aware of - it's better to take the long-term view, and that, according to the company's full-year estimates, is maintaining flat operating profits growth for wines and spirits and a roughly 10% jump in underlying profits growth for beer.
Still, 10% would be impressive in a US beer market that has proved tough for brewers such as Anheuser-Busch InBev in recent quarters. In its most recent results in October, the Budweiser owner saw year-to-date EBITDA puff its way to a puny 1% rise.
Another bright spot is Constellation's confidence in Corona Light, which it is rolling out across the US on draught, with high expectations that the variant will soon outsell its current top on-tap seller, Pacifico. This comes in stark contrast to MillerCoors' problems in the premium light beer category.
Constellation's strong performance helped boost its galloping share price even further. On the New York exchange, the company was up 10% in trading yesterday - this was on top of a 17% jump in the three months leading up to the Q3 results.
Stifel analyst Mark Swartzberg today raised his company's share price target for Constellation after it beat all estimates, while highlighting the fledgling brewer's assurances that its beer depletions will remain above industry growth.
Swartzberg was also happy to hear from Constellation CEO Rob Sands in a conference call after the results that the company’s jump into brewing has been a “turnkey”, something Sands attributed to the quality and experience of staff at Constellation's Piedras Negras brewery in Mexico, which it acquired as part of the Modelo deal.
Constellation may not be completely fresh to the beer industry, but it seems to be settling in nicely to its new, much expanded, situation.
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