On Thursday, JPMorgan maintained its Overweight rating and $307.00 price target on shares of Constellation Brands (NYSE:STZ). The beverage company's second-quarter fiscal year 2025 earnings per share (EPS) of $4.32 exceeded JPMorgan's estimate of $4.03 and the consensus of $4.07. This beat was attributed to better-than-expected margins, including gross margins and operating expenses, partially offset by weaker sales and other minor headwinds.
Constellation Brands' revenue growth of 2.9% was slightly below the anticipated 3.3% to 3.4%. Beer sales outperformed expectations, rising by 5.7%, compared to the projected 5.5% to 5.4%. This was driven by a 4.6% increase in shipments and a 1.1% improvement in price/mix. However, beer depletions, at 2.4%, were below the market consensus of 4.3% due to one less selling day.
The Wine & Spirits segment experienced a 12.5% decline in sales, which was more severe than the forecasted 8.5% to 6.8% drop. Shipments in this segment fell by 9.8%, and price/mix decreased by 2.7%, both performing worse than market expectations.
The company's gross margin expanded by 216 basis points year-over-year to 52.4%, surpassing both JPMorgan's and the consensus estimates of 51.4% and 50.9%, respectively. The gross margin for the Beer division increased by 265 basis points to 54.0%, while the Wine & Spirits gross margin decreased by 224 basis points to 42.2%.
Selling, general, and administrative (SG&A) expenses as a percentage of sales improved by 106 basis points year-over-year to 15.1%, which was more favorable than anticipated. The Beer segment's SG&A expenses were 7 basis points better than the previous year, and the Wine & Spirits segment's SG&A improved by 220 basis points. Corporate expenses also saw a favorable reduction of 48 basis points year-over-year.
In other recent news, Constellation Brands has made headlines with its fiscal second-quarter earnings per share (EPS) of $4.32, surpassing both the consensus estimate of $4.08 and Citi's projection of $4.07. This was largely due to a robust 4.6% increase in beer segment revenue, offsetting a shortfall in beer depletions. The company has reiterated its full-year fiscal 2025 guidance, projecting a year-over-year beer topline growth of 6-8% and beer operating income growth of 11-12%.
Investors have also noted the company's strategic moves, including a declared quarterly cash dividend, signaling its financial health and commitment to shareholder returns. Analyst firms have made various adjustments in their outlook on Constellation Brands. While Roth/MKM reduced the stock's price target to $298, it retained a Buy rating. Deutsche Bank lowered its price target from $259 to $256, maintaining a Hold rating.
Barclays also maintained an overweight rating on Constellation Brands, with a steady price target of $309. This was based on the company's performance, which showcased a balanced approach to growth, profitability, and cash flow. Lastly, Constellation Brands announced the resignation of board member Judy A. Schmeling.
InvestingPro Insights
To complement the detailed earnings analysis provided by JPMorgan, InvestingPro data offers additional insights into Constellation Brands' financial health and market performance. The company's revenue for the last twelve months as of Q1 2025 stood at $10.11 billion, with a growth rate of 5.25%. This aligns with the moderate growth trend observed in the recent earnings report.
Constellation Brands' profitability remains strong, with an operating income margin of 33.15% for the same period. This robust margin supports JPMorgan's observation of better-than-expected margins in the latest quarter. Additionally, the company's P/E ratio of 18.96 suggests a reasonable valuation relative to earnings, which could be attractive to investors considering the company's market position and growth prospects.
InvestingPro Tips highlight that Constellation Brands has raised its dividend for 9 consecutive years, indicating a commitment to shareholder returns. This is further supported by a current dividend yield of 1.58% and a dividend growth rate of 13.48% over the last twelve months. These factors may appeal to income-focused investors.
It's worth noting that InvestingPro offers 5 additional tips for Constellation Brands, providing a more comprehensive analysis for investors seeking deeper insights into the company's financial position and market outlook.
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