Constellation Brands Q3 Results, Oks $3 Billion Buyback

Posted: Jan 05, 2018

Constellation Brands (STZ) reported mixed fiscal third-quarter results Friday and approved a new $3 billion share repurchase, amid speculation about the beer, wine and spirits company's next steps in the cannabis industry.

Estimates: Earnings per share to fall 5% to $1.87, with sales up 3% to $1.863 billion.

Results: EPS of $2.00 on revenue of $1.8 billion.

Outlook: Full-year EPS guidance increased to $8.40-$8.50, with the midpoint above consensus for $8.43. Full-year beer sales are seen up 9%-11%.

Stock: Shares fell 2% to 221.56 in premarket trading on the stock market today. Molson-Coors (TAP) was flat, while Anheuser-Busch InBev (BUD) rallied 1.3%. Brown-Forman (BFB), the maker of Jack Daniel's, was unchanged.

Among pot-related stocks, ETFMG Alternative Harvest ETF (MJX) rose 1.5%, and AdvisorShares Vice ETF (ACT) was quiet. Cannabidiol drug developer Insys Therapeutics (INSY) and Scotts Miracle-Gro (SMG), which has been bulking up its hydroponics business, weren't active yet.

Constellation's results also come as big alcohol companies try to figure out what the booming cannabis industry means for their business as more states, most notably California, legalize using and selling the plant.

The company in October said it would take a 9.9% stake in a Canadian medical cannabis company, Canopy Growth Corp, and reported Friday a $217 million unrealized gain in reported basis results from that investment. The two companies will work together to make cannabis beverages, but Constellation would not sell products in the U.S. or any other area unless it was legal at all levels of government. Canopy Growth said Friday it won't operate in the U.S.

But what, exactly, legal pot might mean for the alcohol industry got a lot cloudier on Thursday. Attorney General Jeff Sessions rescinded instructions, issued during the Obama years, that advised U.S. authorities to lay off states that opted to make marijuana legal, as long as they kept it within the state and away from minors, gangs and criminal groups.

"In deciding which marijuana activities to prosecute under these laws with the Department's finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions," the memo said.

Cowen analyst Vivien Azer said the decision wouldn't radically alter the situation in states where marijuana is legal, with some states' attorneys general unlikely to crack down.

And while legalized recreational use of cannabis is seen as a threat to alcohol consumption, Azer has argued Constellation is the least vulnerable, saying it is able to "play across wine and spirits," which comprise roughly 30% and 5% of the company's sales, respectively.

She added that its beers like Corona appeal more Hispanic consumers — who, research shows, were found to be less likely to use cannabis than whites and African Americans — and to women, who were found to be less likely to use it than men.

Meanwhile, Constellation in recent years has pursued craft beer and whiskey, which has become more popular in the U.S., via acquisitions and investments.

In late 2015, Constellation announced an agreement to buy craft brewer Ballast Point. A year later, the company said it would buy High West Distillery. Constellation also has investments in a handful of whiskey companies.

Brown-Forman, when it reported earnings last month, said that whiskey, bourbon and tequila were "growing ahead of even the distilled spirits category in the United States."

By Bill Peters
January 5, 2018

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