Constellation Brands Lowers Guidance, Stock Gets Crushed

Apr 5, 2012
J. Webster
Comments Off on Constellation Brands Lowers Guidance, Stock Gets Crushed

Tonight, spill some wine out for Constellation Brands, as the stock was down as much as 16% after they lowered guidance for the year. Prior to their earnings report the stock was trading for $25 a share, after earnings the stock dropped down to as low as $21 a share on the day. If you were long, you were going for the bottle to drown your sorrows.

However, a pull back like this might just represent a buying opportunity for long term traders. Constellation has a number of strong brands in the portfolio from Corona to Svedka vodka to a host of popular wine brands like Robert Mondavi and Ravenswood. Check their wine, beer, and spirit brands at their website here. It’s not like people are going to stop drinking wine and beer all of a sudden. In fact, you’d think people might splurge on a bottle of wine now that the economy is improving. Plus, the company authorized a $1 billion stock-buyback program, which it will act on this year. Here are the details from the WSJ.

Constellation Brands Inc.’s (STZ) fiscal fourth-quarter earnings slumped 63% as net sales dropped due to the absence of a divested business and because the prior-year period had a larger income-tax benefit.

Though the quarter’s adjusted profit easily topped Wall Street’s expectations due to a better-than-anticipated tax rate in the latest quarter, Constellation’s shares slumped 13% to $21.41 in recent trading as the maker of Robert Mondavi and Ravenswood wines issued a weak outlook for the new fiscal year. The stock was the worst performer on the S&P 500 in midday trading Thursday.

Constellation projected adjusted earnings for the year would range from $1.93 to $2.03 a share, well below the $2.23-a-share estimate by analysts polled by Thomson Reuters. President and Chief Executive Rob Sands said earnings for the year would be tempered by brand building and sales investments.

After several years of acquisition-fueled growth, Constellation, which also counts Svedka vodka among its brands, divested some business segments that haven’t performed as well as the company originally expected. Constellation has spent more in recent months on incentives and price promotions to drive sales.

The company is planning to launch more than 50 new wine brands and line extensions in 2012, a figure far greater than the 25 new products it launched last year. The company is hoping to win over customers, particularly those between 21 and 34 years old, as it focuses on the explosive demand for red blends, Moscato and unoaked, or stainless-steel fermented, wines.

“Many of our new products are included in the hot categories that are experiencing significant growth and we expect to have an increasing percentage of our overall sales growth this year coming from the contribution of new products,” said Sands during the company’s conference call.

Side note: If you listened to Jim Cramer on this one ahead of earnings you’d be in a mad rage. Here’s his take on the stock ahead of earnings:

Constellation Brands (STZ) also reports ahead of the open Thursday. He thinks this wine and spirits company has been making a series of positive moves, and he wouldn’t be surprised if the stock continues its great performance.”

To me, it seems like this is a stock to watch and perhaps get on board if it drops any further. What do you think?

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