Investors Are Toasting Constellation Brands Ahead Of The Crown Imports Integration

| About: Constellation Brands, (STZ)
This article is now exclusive for PRO subscribers.

Shares of Constellation Brands (STZ) rose 4.3% in Friday's trading session. The wine company reported its second-quarter results for its fiscal 2013.

Second-Quarter Results

Constellation Brands reported second-quarter revenues of $699 million, up 1% on the year. Revenues came in slightly short of analysts' expectations of $710 million.

Operating income fell 10% to $131 million, while comparable operating income came in at $141 million. Net income fell 23% to $125 million, or $0.67 per share. Comparable net income fell to $131 million, or $0.71 per share. Earnings per share came in ahead of analysts' forecasts of $0.54 per share. CEO Rob Sands commented on the results:

As we execute our profitable, organic growth strategy, we are encouraged by the strength of our core beer, wine and spirits businesses including the success of our new product introductions and innovation pipeline across our entire portfolio of outstanding brands. We remain excited about the prospect of owning 100 percent of Crown Imports, which represents a transformational step for our company as it will solidify Constellation's position in the U.S. beer industry for the long term.


For full-year 2013, Constellation Brands expects to earn between $1.87 and $1.97 per share compared to last year's earnings of $2.13 per share. Comparable earnings are expected to come in between $2.00 and $2.10 per share, compared to earnings of $2.34 in 2012.

While the full-year guidance implies a year-on-year fall in earnings, the new guidance is revised upward from earlier guidance. In June, Constellation guided for comparable earnings of $1.93-$2.03 per share.


Constellation Brands ended its second quarter with $178.5 million in cash and equivalents. The company operates with roughly $4.0 billion in short- and long-term debt, for a net debt position of $3.8 billion.

For the first six months of its fiscal 2013, Constellation reported revenues of $1.33 billion. The company earned $196.6 million, or $0.96 per diluted stock. Full-year revenues could come in around $2.7 billion on which the company will earn $1.92, based on the company's midpoint guidance.

The market values Constellation at $6.4 billion, valuing the company at roughly 2.4 times annual revenues and 19 times earnings. Currently, Constellation Brands does not pay a dividend.

Investment Thesis

Year to date, shares of Constellation Brands have risen some 75%. Shares traded around $20 during the first half of the year and jumped 25% at the end of June. The company announced the acquisition of the 50% remainder stake of Crown Imports, known for the popular Corona beer brand. Shares moved up, breaking through the $30 level and recently changing hands at $36 per share.

Over the past five years shares have risen some 50%, after trading as low as $12 in 2009. Between 2009 and 2012, the company saw its revenues fall from $3.7 billion to $2.7 billion. In 2009, the company reported a loss of $301 million that turned into a profit of $445 million in 2012.

Constellation made a killer deal by acquiring the remaining 50% stake of Crown Imports, diversifying the company away from just wine to premium imported beer brands. The company remains excited about the transformational deal, as Constellation still targets to close the deal in the first quarter of calendar year 2013.

Crown Imports, which will be fully owned by Constellation Brands in 2013, reported revenues of $788.4 million for the quarter, up 8.5%. As such, revenues from Crown Imports will exceed Constellation's current revenues, marking a truly transformational deal.

Shareholders in Constellation had a very good run so far in 2012. Shares accelerated in recent months on the back of the Crown Imports deal. While I think that careful integration will create further future value, I'm remaining on the sidelines at the moment. I see few short-term triggers before the integration process will start next year. Shares have already gained 80% after the announcement of the acquisition, and further gains will be triggered by positive comments about the integration pace or synergies from the deal.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.