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Constellation Brands Inc. (NYSE:STZ), the largest wine company in the world, posted its second-quarter 2012 results. Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Quarterly Review

Constellation Brands delivered an adjusted EPS of 76 cents in the second quarter of fiscal 2012, outperforming the Zacks Consensus Estimate of 66 cents and the prior-year figure of 43 cents.

Sales in the quarter plummeted 20% year over year to $770.4 million. Organic constant currency net sales were however at par with the prior-year quarter. The fall in sales was due to the divestitures of the Australian and U.K. wine business and U.K. cider business. However, sales for the quarter surpassed the Zacks Consensus Estimate of $663.0 million.

Management's Guidance for 2012

The company expects fiscal 2012 EPS to be in the band of $1.92 to $2.02. The guidance factors in an interest expense expectation in the range of $180–$190 million, an approximate tax rate of 27% and weighted average diluted shares outstanding of roughly 210 million.

Constellation Brands anticipates free cash flow in the range of $600.0 million to $650.0 million in fiscal 2012.

Agreement of Analysts

Estimate revision trends for the upcoming third-quarter 2012 portrayed a bearish sentiment among most of the analysts. Over the last 7 days, 5 out of 8 analysts have reduced their estimates.

However, on a more positive note, 7 analysts revisiting their estimates for the fourth quarter of 2012 have increased the same.

Moreover, for fiscal years 2012 and 2013, most of the analysts hold positive sentiments. For fiscal 2012, 6 out of 8 analysts revisited their estimates, of which 4 upgraded and 2 downgraded their estimates. Similarly, for fiscal 2013, 5 out of 8 analysts revising their estimates moved upward while 1 analyst made a downward revision.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Constellation Brands depicts a pessimistic outlook for the upcoming third-quarter 2012. The consensus estimate for the said quarter has declined by 3 cents to 53 cents per share.

Contrarily, over the last 7 days, estimated earnings for the fourth quarter of fiscal 2012 have increased by 3 cents to 37 cents per share. For fiscal years 2012 and 2013, estimated earnings have climbed up 10 cents and 11 cents to $2.05 and $2.19, respectively, over the last 7 days.

Our Recommendation

Constellation Brands is the largest wine company in the world with a strong portfolio of premium wine brands complemented by spirits, imported beer and other select beverage alcohol products. The company has operations in five core markets - U.S., Canada, U.K., Australia and New Zealand.

The company reports its operating results under three reporting segments: Constellation Wines (includes branded wines, spirits and other), Crown imports (includes imported beer) and Corporate operations.

In recent times, Constellation benefited from U.S. distributor consolidation initiatives and a renewed focus on building and promoting brands. Management stated that these efforts enabled the company’s top 15 U.S. wine brands to expand at a rate faster than the market and accounted for a significant portion of U.S. wine profitability.

Constellation Brands competes with Foster's Group Ltd. (FBRWY.PK) and privately held E. & J. Gallo Winery and Jackson Family Wines.

Currently, Constellation Brands holds a Zacks #2 Rank, implying a short-term Buy Rating on the stock. However, in the long term, we have a Neutral recommendation on Constellation

Source: Earnings Scorecard: Constellation Brands