Constellation Brands' ($STZ) fiscal second quarter is currently on a trajectory that falls short of previous expectations, as highlighted by RBC Capital Markets on Tuesday. The financial firm has adjusted its revenue target for the August quarter, revising it down to $2.95 billion from an earlier forecast of $3.01 billion.
Additionally, the adjusted earnings per share (EPS) outlook has been trimmed to $4, down from $4.07. Analysts from Capital IQ, on average, are projecting revenue of approximately $2.96 billion. The volume of beer is now projected to have increased by 4% during this quarter, a noticeable contraction from RBC's previous growth estimate of 6%.
This adjustment is attributed to adverse weather conditions that have negatively affected beer consumption trends, according to Nik Modi, who serves as co-head of RBC's global consumer and retail research. In contrast, wine and spirits volumes are expected to have declined by 4%, which is a significant departure from the brokerage's earlier expectation of only a 2% drop.
This downturn is indicative of deteriorating dynamics within the overall category over the last few months. Modi pointed out that brands like Svedka and Woodbridge are not contributing positively to volume growth, while competitive brands such as Kim Crawford and Meiomi are also facing pressures that could impact their performance. Constellation Brands holds a prominent position in the market as it owns the brand licenses for well-known beers such as Corona and Modelo in the United States.
The company is set to disclose its second-quarter results on October 3. RBC has also revised its fiscal 2025 revenue forecast downward to $10.52 billion from a previously stated $10.58 billion. Furthermore, the firm's EPS estimate has been updated to $13.62, down from an earlier prediction of $13.70.
The consensus among analysts surveyed by Capital IQ points to an anticipated revenue of $10.51 billion for the current fiscal year. Despite the downward revisions, Modi has maintained an outperform rating on Constellation Brands with a price target of $308 for the stock. He emphasizes that the company's market share gains in the beer sector remain robust.
In Tuesday's trading session, Constellation Brands' shares experienced an increase of 2.6%. The projected 4% growth in beer volume for the second quarter is considerably better than most companies in the consumer staples sector and significantly outpaces the overall performance of the beer category.
According to RBC Capital Markets, Constellation Brands is well-positioned to achieve a compound annual growth rate (CAGR) for its beer top line in the range of 7% to 9% over the next three years. Price: 247.15, Change: +6.44, Percent Change: +2.68 $STZ.