Will soft wine and spirits trends impact results?

Constellation Brands, Inc. STZ is expected to report second quarter fiscal 2025 results on October 3, 2024. The alcoholic beverage giant is expected to have posted growth in sales and profits in the quarter under review.

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The Zacks Consensus Estimate for the company’s second-quarter earnings is $4.11 per share, representing growth of 11.1% from the prior-year quarter. The consensus mark has fallen by one cent in the last 30 days. The consensus revenue estimate is $3 billion, up 4% from the reported figure for the prior-year quarter.

In the last reported quarter, the alcohol giant delivered an earnings surprise of 3.2%. The bottom line beat estimates by an average of 6.4% over the last four quarters.

Constellation Brands Inc. Price and EPS Surprise

Constellation Brands Inc Price EPS Surprise | Quote from Constellation Brands Inc

Key factors to consider

Constellation Brands faced challenges in its wine and spirits segment, primarily due to difficult market conditions across most price points. The company also struggled with higher corporate expenses, driven by higher compensation and benefits, as well as higher professional fees. In the last earnings release, management forecast a slight increase in these expenses in the coming quarters, primarily due to higher compensation and investments in digital capabilities.

Constellation Brands also expects a slight increase in interest expense following a decline in capitalized interest from beer expansion in the second fiscal quarter. A small increase in the effective tax rate is expected, due in part to larger contributions from the wine and spirits segment to total operating income.

In a recent update, the company noted that weak demand trends in its wine and spirits business continued into the fiscal second quarter, particularly in the U.S. wholesale market, resulting in declines in both mainstream and premium wine brands. Macroeconomic factors such as rising unemployment have weakened consumer demand.

As a result, STZ expects to incur non-cash goodwill impairment charges of $1.5 billion to $2.5 billion in its wine and spirits division in the second quarter of fiscal 2025. Despite pricing and marketing efforts to support its core brands, the company continues to face operational challenges contributing to these impairments.

While previously implemented commercial and operational initiatives have improved the performance of major brands in the wine and spirits category, additional headwinds in the category are impacting the near-term prospects of this segment. These pressures, combined with ongoing macroeconomic challenges, pose risks to this segment and are expected to result in weaker sales and profit results in the quarter under review.

However, the beer segment remains robust, with minimal impact from the general economic situation. Constellation Brands’ beer division is expected to have benefited from cost-saving measures and efficiency initiatives, although increased marketing investments could easily offset these gains. This is expected to be reflected in the beer segment’s operating income in the quarter under review.

The company is poised for further growth in its beer portfolio, driven by brands such as Modelo Especial, Corona Extra, Pacifico and Modelo Chelada. The beer segment’s premiumization strategy, including flavored beers and seltzers, is expected to have boosted sales in the fiscal second quarter.

The story continues

Zacks model

Our proven model doesn’t predict any earnings growth for Constellation Brands this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the likelihood of an earnings beat. But that is not the case here. Use our Earnings ESP filter to discover the best stocks to buy or sell before they’re reported.

Constellation Brands has a Zacks Rank #3 and an ESP of -0.30%.

Stocks with a favorable combination

Here are some companies to consider as our model shows they have the right combination of elements to see an increase in profits this time:

Philip Morris International PM currently has an Earnings ESP of +0.57% and a Zacks Rank of 2. The company is expected to post growth in sales and earnings when it reports third-quarter 2024 results. The Zacks Consensus Estimate for Philip Morris’s quarterly revenue is $9.6 million, representing growth of 4.7% from the figure reported in the prior-year quarter. You can see You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for PM’s quarterly earnings has remained unchanged over the past 30 days at $1.83 per share. The consensus mark indicates growth of 9.6% over the reported figure for the year-ago quarter. PM averaged 1.8% profit growth over the last four quarters.

Colgate Palmolive CL currently has an Earnings ESP of +1.20% and a Zacks Rank #2. The company is expected to post growth in sales and earnings when it reports third-quarter 2024 results. The Zacks Consensus Estimate for quarterly revenue is $5 billion, indicating an increase of 1.9% from the figure reported in the year-ago quarter.

The Zacks Consensus Estimate for quarterly earnings remained unchanged at 88 cents per share over the past 30 days. The consensus estimate for CL’s earnings suggests growth of 2.3% over the reported numbers for the prior-year quarter. CL has delivered an earnings surprise of 4.8% on average over the past four quarters.

Monster drink MNST currently has an Earnings ESP of +1.62% and a Zacks Rank of 3. The company is expected to post growth in sales and earnings when it reports third-quarter 2024 results. The Zacks Consensus Estimate for MNST’s quarterly earnings remained unchanged at 43 cents per share over the past 30 days. The consensus earnings estimate suggests growth of 4.9% compared to reported figures for the prior-year quarter.

The Zacks Consensus Estimate for Monster Beverage’s quarterly revenue is estimated at $1.9 billion, up 3.2% from the figure reported in the year-ago quarter. MNST delivered a negative earnings surprise of 3.4% on average over the last four quarters.

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Philip Morris International Inc. (PM): Free stock analysis report

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Monster Beverage Corporation (MNST): Free Stock Analysis Report

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