Constellation Brands (STZ) Q1 Miss Tied to Wine Margins

Constellation Brands (NYSE: STZ) declined Tuesday after it reported Q1 EPS of $0.38, $0.03 worse than the analyst estimate of $0.41. Revenue for the quarter came in at $673 million versus the consensus estimate of $674.24 million. The main source of weakness was in wine/sprits, according to Goldman Sachs analyst Judy E. Hong.

"Wine/Spirit sales of +6% was in-line with our expectations, but higher grape inflation, higher SG&A spend, and higher promotional expense (organic price/mix -0.9% vs. GS est. +1%) led to segment operating income of -4%, well below our expectations." said Hong.

"The higher grape inflation and SG&A spend are both issues we knew about, but the magnitude of promo expenses were higher and the EBIT decline was a bit surprising given an easy compare (lapping inventory de-load and heavy marketing spend). However, since STZ raised guidance (due to lower interest expense) we don’t believe 1Q results were totally out of line with what the company expected and we believe Wine/Spirits profitability issues in 1Q may be partly due to timing," she added.

Goldman Sachs has a Neutral rating on Constellation Brands with a price target of $60.00

For an analyst ratings summary and ratings history on Constellation Brands (NYSE: STZ) click here. For more ratings news on Constellation Brands click here.

Shares of Constellation Brands closed at $53.15 yesterday.

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