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Wine and beer importer Constellation Brands (NYSE:STZ) reported fiscal year 2013 second quarter results. Revenue grew 1% to $700 million, slightly below consensus expectations, but still up in the face of significant competitive pressures. Earnings fell 8% year-over-year to $0.71 per share, which was significantly better than consensus predictions.

Both higher interest expenses and a higher tax rate negatively impacted earnings during the quarter. However, earnings were favorably boosted by the firm's investment in Crown Imports. Wine and spirits sales were solid thanks to market share gains from SVEDKA (vodka) and Noblio (wine). However, Constellation has been highly promotional to gain market share, so volume increases haven't resulted in increased profitability. Still, we like the trends we've been witnessing in the spirits market, and we think SVEDKA will continue to be a growth engine in the segment.

Though the company's wine and spirits sales were strong, most of the focus for investors has been diverted to the company's acquisition of the remaining 50% of Crown Imports from Anheuser-Busch Inbev (NYSE:BUD). Financing for the deal was secured during the second quarter, and it expects to close in the first quarter of calendar 2013.

Crown markets and imports Grupo Modelo's beverage portfolio, which includes the Corona brands and Modelo brands. Both have experienced solid growth in North America. Though the company primarily operates in different segments of the alcohol market, we think management understands the shift in consumer preferences, particularly in the US. For one, imports like Corona continue to gain market share as consumers move away from the traditional national beers and move toward crafts, imports, and other expensive beers.

Going forward, Constellation expects fiscal year 2013 earnings to fall to $2.00-$2.10 per share, on an adjusted basis, due primarily to higher interest expense and a higher overall tax rate. Still, this number exceeds the consensus expectation of $2.00 per share. Constellation expects free cash flow generation of $450 million to $500 million during fiscal 2013. All things considered, we think the company is fairly valued at current levels. We aren't interested in adding shares to our Best Ideas Newsletter at this time.

Source: Constellation Brands Posts Better Than Expected Results But Shares Are Fairly Valued