Alcohol manufacturer and distributor Constellation Brands (STZ) - Get Constellation Brands, Inc. Class A Report reported a weak fiscal second quarter, but shares of the company are still worth a look, argues Real Money’s Stephen “Sarge” Guilfoyle.
The company recently reported adjusted EPS of $2.38, well below Wall Street's expectations. Revenue came in at $2.37 billion, which is up by 4.9% from 2021 during the same period.
The company’s GAAP EPS however came in at $1.5 million, or a penny a share, down from $512.1 million for the same quarter last year. Guilfoyle says that’s basically due to a $470.8 million loss on its investment in Canadian cannabis company Canopy Growth (CGC). If you do not include Canopy, the wine and spirits business generated $2.57 per share.
“Cannabis may or may not be a gateway drug, but for Constellation, it is a gateway to something,” Guilfoyle wrote recently on Real Money.
The company also saw general and administrative expenses jump 22.8% to $490.5 million, and burned through $29 million paying down debt.
“Pretty much explains the gist of it,” he wrote in a recent Real Money Pro column. “Rising costs that may have appeared almost, but not quite manageable if not for that hard-hitting loss on the investment made up in the land of ice and snow.”
Constellation faces additional hurdles such as its $486 million in new borrowings that showed on this quarter’s balance sheet for the first time. Then there’s that $10.081 billion in long-term debt. “That's a lot of bread, man,” Guilfoyle wrote. “More than a full year's revenue at the current pace.”
Still, “The firm can pay their bills. This is just something to watch, and should Canopy do a little better moving forward, some of this concern abates on its own.”
The company has a positive outlook, Guilfoyle wrote.
Constellation estimated its new fiscal full year EPS to range from $10.15 to $10.45, an increase of $0.15 from its prior guidance. The company also estimates that beer sales will grow from 9% to 11% from 2021 levels.
“Call me interested, but not in love,” he wrote.