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Manufacturer of high-end spirits and beverages Constellation Brands Inc. (NYSE: STZ ) The stock has been rising to a 50-point trade in more than a year. Alcohol falls under a variable commodity category that theoretically does not guarantee recession. However, there is a high level where consumers choose to drink less but spend less on their fix. This can lead to cheaper brands trading in premium brands.
So while alcohol may be elastic in principle, the reality is that cheap alcohol is more likely to cause an economic downturn than premium alcohol. Marketing reduction action is characterized by consumers choosing cheaper private label brands over national brands at managed grocery stores. The Kroger Co. (NYSE: KR ).
The “Trading Down” Dilemma
This is the dilemma of star brands in a nutshell. The maker of premium liquor brands such as Corona, Modelo Beer, Kim Crawford, Rufino Wines, Casa Noble Tequila and Svedka Vodka faces tougher competition from cheaper brands. Anheuser-Busch InBev SA/NV (NYSE: BUD ) And Molson Coors Beverage (NYSE: TAP ). Additionally, input costs remain high due to inflation, which is expected to remain in the single-digit range for fiscal 2024. As a result, you won’t find any star brands on the rail bar.
Cooling down
In the year In January 2023, Constellation Brands released its fiscal third quarter 2023 results for November 2022. The company reported earnings-per-share (EPS) of $2.83, missing the consensus analyst estimate of $2.87, by ($0.04) per share. Revenues rose 9.2 percent year-over-year (yoy) to $2.44 billion, beating analysts’ estimates of $2.38 billion.
Flat guide
The company issued full-year 2023 EPS guidance of $11.00 to $11.20, versus consensus analyst estimates of $11.05. Brewer expects net sales growth of 9% to 10% and operating income growth of 4% to 5%. Wind and spirits are expected to decrease by (-2%), while operating income will increase from 3% to 5%.
This does not include net sales of $44 million and gross profit of $26 million from less trading, which is not part of the results of the Wind & Spirit business. The company It affirmed its operating cash flow target for fiscal year 2023 from $2.6 billion to $2.8 billion and raised its free cash flow forecast to $1.5 billion to $1.6 billion.
Ways to receive a conference call
Constellation Brands CEO Bill Newlands said its premium beer business has continued to lead share gains in the US beer category for six consecutive quarters with its Corona Extra and Modelo Special labels. Modelo Especial is the largest shareholder and number one premium beer brand, followed by the third largest shareholder and number three premium brand, Corona Extra.
The beer business has a 54% sales growth compared to the third quarter of 2019 at pre-pandemic levels.
In its wine and spirits business, its largest high-end brands Kim Crawford, Mayomi, High West and The Prisoner posted 72% dollar sales growth compared to pre-pandemic levels. In addition, the company has acquired five brands since fiscal 2020, including My Favorite Neighbor, Passionate, Halpern & Kings, Bronco Wines and Austin Cocktails, bringing it to 36 brands in its core segment.
This has shifted 62% of the portfolio and 34% pre-pandemic to premium brands.
Regarding the development of extinction
He pointed out that weak growth is normalizing for the beer business in the quarter, which fell to 5.7%. This shows that beer sales are declining especially after favorable conditions. In the year There are several headwinds, such as increased California weather, to double-digit growth in California in November 2021 due to better weather and a better economic climate.
This creates strong compounds. Top Modelo Special brand saw 4.4% contraction growth, but that’s after 13.2% contraction growth last year. However, the brand recorded a declining growth of 9.9 percent in fiscal year 2023. The latest premium beer brand, Pacific, still has a long runway, as it recorded 26% attrition growth.
Erosion of pricing power
The CEO, on the other hand, summed up the comments on providing support for the upcoming headwinds, “Therefore, given the pressures we expect consumers to face in the near term, we are paying more attention to our fiscal pricing practices. ’24.
Additionally, while some input costs are below their FY20 highs, we expect inflation to remain above historical trends in the high single-digit range in FY24. As always, we continue our disciplined approach to managing these dynamics through cost-saving initiatives.
However, these persistent inflationary headwinds will intensify on the double-digit cost increase we experienced in FY23. This indicates that the consumer’s pricing power is weakening as they face economic hardships, causing them to trade down to cheaper alternatives.
Year-long weekly rectangular trading range
STZ stock was in the 50-point range, as shown by the weekly rectangle on the candlestick chart. From a low of $207.35 to a high of $258. There were a couple of occasions when shares looked to break the high range at first as they neared $261.52, but they didn’t last nearly a week before collapsing into the quad range.
The most recent breakout test in November 2022 crashed into the lower range at $208.12, shaking off all who tried to enter the gap.
The weekly market structure low (MSL) buy was retriggered by a breakdown of $226.84 as the weekly stochastic crossed higher to support the retracement. The weekly 20-period exponential moving average (EMA) is at $234.43 while the weekly 50-period MA has crossed the resistance at $237.48.
The weekly market structure high (MSH) trigger at $241.89 is the next critical test of resistance before another upper rectangular range resistance runs at $258. Retracement supports are at $222.39, $218.10, $214.48, $210.75, $207.35 weekly swing low, and $202.70.
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