Constellation Brands: Beer Business Thrives, Wine and Spirits Face Challenges
2024-01-24
Constellation Brands, a leading beverage alcohol company, held its Q3 fiscal year 2024 earnings call on January 5, 2024. The call featured participants such as Joseph Suarez, Bill Newlands, and Garth Hankinson, who discussed various topics related to the company's performance and future outlook.
One of the key takeaways from the earnings call was the strong performance of the beer business in Q3. The beer portfolio achieved depletion growth of over 8% and gained leading market share in tracked channels. This marked the 55th consecutive quarter of depletion growth for the beer business. The company expects the beer business to continue its growth momentum with net sales growth guidance of 8% to 9% and operating income growth guidance of 7% to 8% for fiscal year 2024.
However, the wine and spirits business faced some challenges in Q3. The company revised its organic net sales guidance for wine and spirits, expecting a decline of 7% to 9%. The operating income guidance was also revised to a decline of 6% to 8%, excluding gross profit less marketing of brands divested last year. Robert Hanson, the president of the wine and spirits business, announced his departure from the company, and the CEO will temporarily lead the business.
To address the challenges in the wine and spirits business, Constellation Brands has outlined medium-term targets to accelerate net sales growth to 1% to 3% and improve operating margins to 25% to 26%. The company is focused on improving wholesale performance, developing direct-to-consumer and international channels, and enhancing the performance of mainstream brands like SVEDKA and Woodbridge.
In terms of financials, Constellation Brands aims to achieve a target net leverage ratio of three times by fiscal year 2025. The company plans to maintain a dividend payout ratio of approximately 30% and invest approximately $5 billion in growth and maintenance capex from fiscal year 2024 to fiscal year 2028. The focus of the capex investment is primarily on brewing capacity expansions for the beer business.
The company generated free cash flow of $1.4 billion through the first three quarters of fiscal year 2024, with a 10% decrease compared to the previous year. The expected range for enterprise comparable EPS guidance for fiscal year 2024 remains at $12 to $12.20, and the company expects low double-digit EPS growth over the medium term.
Overall, Constellation Brands remained optimistic about the growth prospects of its beer business and was committed to improving the performance of its wine and spirits business. The company was focused on delivering value to shareholders, investing in organic growth, and maintaining a strong financial position.