This Stock Is Still Buzzing

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Constellation Brands (NYS: STZ) once again managed to come up with higher-than-expected earnings despite a sluggish consumer environment; shares were up nearly 9% on the day the results were announced.

Alcohol is a product that generally retains its demand even in a slowing economy. This phenomenon works in favor of companies such as Constellation Brands, Anheuser-Busch InBev (NYS: BUD) , and Molson Coors Brewing (NYS: TAP) .

What sizzled ... and what fizzled
Revenue dropped 20% compared to the previous year's quarter to $690.2 million. But that does not worry me. This decline was mainly due to the sale of the company's Australian and British wine business in January.

More importantly, net income numbers were up a staggering 78% year over year to $162.7 million. This translates into earnings per share of $0.76 compared to Wall Street's expected $0.66 per share. Remarkably, this company beat market targets for the fourth consecutive quarter. It also benefited from a lower effective tax rate this quarter.

Constellation Brands saw an improvement in sales in North America this quarter. The company also benefited from a drop-off in expenses after cutting costs.

The recent divestment of the company's lower-margin Australian and British business also boosted the company's overall gross margin this quarter.

The company owns 50% of Crown Holdings (NYS: CCK) , which unlike last quarter, posted a 4% decline in net income versus the same quarter last year. Overall, volumes were lower and promotional costs were higher during the quarter, but Constellation remains optimistic about the U.S. wine and spirits market.

The Italian addition
The company announced that it will acquire the remaining 50% stake in the internationally recognized Italian wine brand Ruffino for a total of $142 million. Year to date, Ruffino has grown 9% in global sales. This acquisition seems to be a good addition to the company in terms of brand value.

Free cash flow of the company for the previous six months is strong at $478 million, up by 82% compared to the previous year period. This added free cash flow makes acquisitions, like the one of Ruffino, easier to perform without taking on extra debt.

A Fool's look
Constellation has 20 new product launches lined up for 2012, which are expected to add to its revenue. I think the pieces look in place for Constellation to continue to grow in the future, and management had enough confidence in the company to raise its full-year earnings outlook range by $0.10 to $1.97-$2.00. What do you think?

To stay up to speed on Foolish news and analysis on Constellation Brands, add it to your stock watchlist. Click here.

At the time this article was published Navjot Kaur does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Molson Coors Brewing.Motley Fool newsletter serviceshave recommended buying shares of Molson Coors Brewing. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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