Constellation Brands (STZ) is trading higher today (+4%) after reporting impressive 2Q18 (Aug) earnings results this morning. You're probably familiar with Constellation Brands, but you may not be aware of all their brands.
STZ is a producer of beer, wine and spirits. It's the number 3 beer company in the US with high-end, iconic imported brands such as Corona Extra, Corona Light, Modelo Especial, Modelo Negra and Pacifico. The company's beer portfolio also includes Ballast Point, a highly awarded craft brewer in the US. Of note, STZ recently acquired Funky Buddha, a craft beer brand that advances the company's strategy of leading the high-end of the US beer market. It's a fast-growing craft brewery in Florida with an award-winning portfolio led by Floridian Hefeweizen and Hop Gun IPA.
In addition, Constellation is the world leader in premium wine with brands including Robert Mondavi, Clos du Bois, Kim Crawford, Meiomi, Mark West, Franciscan Estate, Ruffino and The Prisoner. The company's premium spirits brands include SVEDKA Vodka, Casa Noble Tequila and High West Whiskey.
Turning to the AugQ results, non-GAAP EPS rose 39.5% YoY to $2.47, which was much better than expected. Revenue rose 3.1% year/year to $2.08 bln, which was modestly better than market expectations. STZ also raised guidance for FY18 as they now expect non-GAAP EPS of $8.25-8.40, up from prior guidance of $7.90-8.10.
STZ says its AugQ results are a testament to the fact that its total beverage alcohol (TBA) strategy is paying off. What that means is that STZ says it remains the leader in the high-end of the US beer market and it's reaping the benefits of its Wine and Spirits premiumization efforts. Basically, the company is going more to the higher end for wine & spirits and it's paying off.
In the beer segment, the Modelo brand family drove strong portfolio performance during the key summer selling season with depletion growth of almost 20%. Shipment and depletion growth rates in the 9-10% range for the first half of the year drove significant share gains during this time. Operating margin for the segment increased 420 basis points to 41.1%, primarily due to strong operational performance during peak summer production for its breweries and glass plant in Mexico. Favorable pricing and foreign currency benefits also drove margin expansion.
In the wine & spirits segment, strong US depletion growth of 5% outpaced US shipment volume primarily due to timing. Operating margin improved 40 basis points to 26.2%, as mix benefits from portfolio premiumization efforts were partially offset by planned higher marketing spend. Acquired brands including The Prisoner and Charles Smith wine brands, as well as High West Whiskey, delivered exceptional depletion growth of 30%, 74% and 37%, respectively. Recent brand introductions, including Cooper and Thief, the #3 super luxury red blend and 7 MOONS, a top 10 premium red blend, have solid marketplace momentum.
In sum, this was another very strong quarter for STZ. In fact, the stock has been on a strong upward trend since early February when it was trading at $150, it's now trading in the $209 area. A series of impressive earnings results this year has driven the stock nicely higher. In particular, STZ has now reported huge back-to-back EPS beats in MayQ and AugQ.