Constellation Brands CEO defends Corona beer maker's careful earnings guidance

Published Thu, Oct 6 20227:22 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Constellation Brands (STZ) took an intentionally cautious approach with its forward earnings guidance despite another better-than-expected quarterly report , CEO Bill Newlands told Jim Cramer on Thursday. "There's a lot of volatility still in the market," Newlands said. "Admittedly, we're being careful." With macro conditions still uncertain, we think this is a wise move. Earlier in the day, the maker of Corona and Modelo beer posted a top-and-bottom line beat for its fiscal second quarter. Shares fell 1.5% in the session to close at $232.52 apiece, though. One reason might've been some investor disappointment over management's conservative adjustment to its full-year profit outlook. Constellation now expects full-year consolidated earnings per share between $11.20 to $11.60, excluding the impact of its troublesome Canopy Growth (CGC) investment, compared with the prior projection of $11.20 to $11.50. While the top end of the guidance was raised, the low end stayed the same, which raised some questions about business conditions in the second half of Constellation's fiscal year. As shareholders for the Club portfolio, we understand management's desire to be prudent with its guidance given the uncertainty of the current environment. We think selling the stock based on the fact guidance remained solid, but maybe not stellar, is shortsighted. We have a 1 rating on the stock, meaning we'd be buyers here. Newlands expressed confidence in the overall resiliency of the company, noting management also raised its full-year beer sales forecast to 8% to 10% growth compared with its old outlook of 7% to 9% growth. It also now sees operating income for that business growing between 3% to 5%, up from 2% to 4% growth. Additionally, Newlands said Constellation's September depletions — a key metric in the beverage industry measuring cases that distributors sell to retailers — tracked well. In its just-ended Q2, Constellation's beer depletions grew nearly 9% year over year, similar to what the company saw in the fiscal first quarter . "Our depletions in the month of September were very strong and very consistent with what our year-to-date growth profile looked like," the chief executive told Jim. "We remain very confident we're going to have a very strong year, and one that delivers against what we called out." Canopy Growth Constellation's big bet on cannabis through a multi-billion dollar investment in Canopy Growth in 2018 has not gone to plan, as broad legalization in the U.S. hasn't materialized as quickly as some expected. The day before Constellation's larger stake in Canopy Growth was announced, Aug. 14, 2018, shares of the Canadian cannabis company closed at $24.62 apiece. On Thursday, Canopy shares closed at $3.75 each — even after factoring in a 22.15% surge on news that President Joe Biden was pardoning some federal marijuana possession convictions and instructing other branches of the government to review how marijuana is classified under federal drug laws. Canopy shares also were in the green in extended trading. The reaction in Canopy shares suggests some investors see renewed optimism around cannabis legalization in the U.S. When asked about Biden's decision and any potential implications for Canopy, Newlands said Constellation Brands continues to believe "it's going to be a big category," referring to cannabis. "Canopy certainly has positioned themselves well. The ecosystem they've set up in the U.S. — with Wana and Jetty and Acreage [brands] — is second to none. Obviously, we've all feel better if the legal situation was better than it has been, but we certainly feel like they're well positioned if things move along, even though it's taken way longer than any of us had anticipated." (Jim Cramer's Charitable Trust is long STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A worker stacks cases of Constellation Brands' Corona beer for delivery at the Euclid Beverage LLC warehouse in Peru, Illinois.

Daniel Acker | Bloomberg | Getty Images