Constellation Brands, Inc.

This is our first report on Constellation Brands, a dominant player in the international alcoholic beverage market, particularly the Mexican beer space. In the last quarter, the company’s business outperformed Wall Street expectations in terms of revenues as well as earnings as it delivered a strong set of operating results. Consumer demand for the products remained quite strong. The consumer-led premiumization trends continue in beverage alcohol benefitting the company. The buy rate increased in the quarter for both total wine categories and high-end beer in tracked channels. The beer business of the company remained well placed that continues to support the steady growth of the brands. Constellation’s DTC and international channels delivered double-digit net sales. The capital allocation priorities of the company remain firm. The construction processes and capacity expansions continue as per plan. The M&A focus of the company stays on small acquisitions to fill the portfolio gaps, especially in its spirits and wine business. Most recently, this included the investment in one minority stake in Archer Roose as a part of the company’s initiative Focus on Female Founders. From the innovation perspective, there were various introduced products recently that are driving growth. The recent launches of Blindfold Blanc de Noir and The Prisoner Pinot Noir are seeing early success. In three-tier e-commerce, it is continuing to outperform. We initiate coverage on the stock of Constellation Brands with a ‘Hold’ rating.