Can Anything Stop Constellation Brands?

Booze giant Constellation Brands is having trouble doing anything wrong. The company, which owns a variety of brands from Corona to Robert Mondavi wines, has seen its stock rise more than 110% in 12 months. The best part is, the growth doesn't look to be ending anytime soon, as nearly all segments are showing strength -- even its big beer business. What is it that allows Constellation's brands to exhibit such resilience while many competitors are finding it difficult to maintain volume and growth? Let's take a look at the new earnings report for a hint.

In 2013, Constellation Brands was the top performer in the S&P 500 Consumer Staples index, and 2014 is off to a great start. The company grew its fiscal-third-quarter sales by an impressive 88%, mainly due to its recent acquisition of Grupo Modelo -- four Mexican beer brands that are among the best-sellers in the industry.

On a comparable basis (excluding restructuring charges) earnings went to $1.10 per share -- a gain of 83% from the prior year's quarter.

Net sales for the beer segment grew 23% due to demand for the aforementioned Mexican beers and normalized inventory levels at distributors. All the core beer brands saw volume increases. Investors should note that any increase at all is impressive, let alone double-digit increases. Though craft-beer mania has swept the nation, legacy beer brands have seen demand drop for several years.

It wasn't just beer that performed well -- the company's wine-and-spirits portfolio saw sales tick up a collective 3%. Wine outperformed the broader U.S. wine market, while bulk spirit sales sagged a bit.

Most encouraging to the Street was forward guidance. Constellation Brands expects $525 million to $575 million in free cash flow (giving it a P/FCF of more than 25 times at the high end) and a comparable full-year EPS between $3.10 and $3.20. In the prior year, on the same basis, the company earned $2.19 per share.

Despite this company's large size and status as the third-biggest beer company in the country, it is growing incredibly well.

Thus far, Corona, though far, far from a craft beer, has followed the craft trend while the regular beer market has deteriorated over time. Demand, as reported, is up on all counts. This is due to great marketing (who doesn't like the idea of a Corona with lime?), smart business decisions (Corona is now available on draft), and perhaps an easily convinced American beer drinker.

If that image fades and American beer drinkers view the brands as more similar to the Buds and Millers, that beautiful double-digit growth could slow down quickly. At 20 times forward earnings, the company isn't expensive, but the market is certainly expecting a decent rate of growth in the coming years -- largely in response to the Grupo Modelo purchase.

This risk is speculative, though, and the company has only shown evidence of the opposite -- increasing demand. For growth seekers, this is very well-run company with a great eye for hitting the American demand sweet spot. Even after its precipitous rise, I'd consider an investment in Constellation Brands.

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