Friday, Jun 29th 2018

Beer Outperformance Negated by Marketing Spend


Constellation reported mixed Q1 results with strong sales but slightly weaker than expected profits. Importantly, the company showed strong execution and market share gains for both the Corona and Modelo brands, both of which were Top 5 market share gainers in the beer category in the period.

The company's earnings missed expectations due to elevated marketing investments the company made in its Corona Premier and Familiar brands.

These beer brands are seeing outstanding distribution trends and the company wants to drive increasing velocity of these products on store shelves. However, in the near term these marketing investments created some headwinds to STZ's profits.

Per management: "The Mexican beer business is performing incredibly strongly and we see no issues there."

We view these brand investments as wise and in-line with our thesis. However, short-term focused investors viewed this as slightly disappointing, hence the stock down 4% today.

The fundamentals of STZ's distribution moat, secular growth trends in beer, and strong management team are not impacted by short-term results.

As of this writing, STZ was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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