Constellation Brands: Demand And Margin Concerns Drive A Selloff

There has long been above-average volatility at Constellation Brands (NYSE:STZ) around quarterly earnings reports, and going into this fiscal third quarter report there were some elevated concerns about slowing volume growth. With weaker-than-expected depletions and worse cost guidance from management, Constellation's earnings/guidance report was disappointing, leading to sharp underperformance (around 800-900bp) relative to the S&P 500 and the consumer staples group.

While I had written about some risks going into this quarter a month ago, Constellation's performance was weaker than I'd expected. Still, I believe these are short-term issues that while not trivial, don't impair the long-term thesis for the company or stock. I still see Constellation as a share grower (with long-term revenue growth in mid-to-high single-digits) with meaningful untapped opportunities in improved retail and on-premise distribution. I do still have some concerns about FY'24 guidance (which I'll discuss), but I think this is a name well worth considering.

 

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Constellation Brands: Demand And Margin Concerns Drive A Selloff