Thursday, Apr 4th 2019

Constellation Q4 2019 Earnings: A Taste for the Finer Things

Update

Millennials are becoming more and more snobby when it comes to booze, and Constellation is winning because of it.

  • Constellation Brands (STZ) was up over 6% on Thursday after reporting strong growth in its high-end beer, wine & spirits brands.
  • The earnings report came just on the heels of the announcement of Constellation's $1.7 billion sale of its low-end wine portfolio - a deal which should enable it to focus more on its core, premium-tier strengths.
  • Consumers are increasingly seeking out “the good stuff” when it comes to booze, and Constellation's triple-category portfolio of beverages continues to win over their increasingly sophisticated palates.
  • The cannabis opportunity is still in very early innings, but Constellation already thinks Canopy can hit $1 billion CAD in run-rate revenue by next year.

Here's how we view Constellation's consumer thesis, in 3 charts:

1.) Consumers are increasingly seeking out “the good stuff” when it comes to booze

Top Shelf

2.) The best consumers have the broadest palates

Broad Tastes

3.) The cannabis opportunity is still in very early innings

Broad Tastes

We believe Constellation's strong performance in Q4 provided validation to this thesis: both the Beer and the Wine & Spirits segments handily outperformed analyst expectations in the quarter, by +5% and +7%, respectively.

If the current trend continues, we believe consumer shifts towards premium products should continue to drive mid-to-high single digit revenue growth (and low double digits earnings growth) at Constellation for years to come.

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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