by Adriana Cargill

Constellation Brands Inc. exceeded analysts’ expectations for its fourth quarter and projected strong gains in sales and earnings, driven by booming import beer sales in the U.S. But the stock, which has enjoyed a strong run in recent months, barely budged.

In the quarter that ended February 28, the Victor, N.Y.,-based leading purveyor of beer, wine and spirits earned $214.6 million, or $1.06 per diluted share, up 37 percent from $157.2 million, or 79 cents per diluted share, in the year-earlier quarter. Analysts estimated 92 cents per share.

Sales rose 5 percent to $1.36 billion compared with $1.30 billion in the same quarter a year ago. “They’re still firing on all cylinders,” said analyst Jon Staszak of Argus Research. “Imported beers are very popular, beer demand is very strong. They had a nice run, probably because of a great quarter and conservative guidance which led to tempered gains on the day; really great quarter. I’m still bullish on the shares.”

The stock closed at a record high of $120.06, up 89 cents, or less than 1 percent. Analysts’ consensus target price is $125. They estimate earnings in the new fiscal year ending next February of $4.81 per share, while the company stated in its earnings report that this year’s earnings will be between $4.55 and $4.75 a share.

In the full year ended February 28, Constellation Brands earned $839.3 million or $4.17 per diluted share, on sales of $6.03 billion, compared with earnings of $1.94 billion or $9.83 per diluted share, with sales of $4.87 billion a year ago. The decrease in earnings is largely attributable to a favorable accounting adjustment of $1.67 billion in the prior year.

Constellation Brands growth last year was largely a result of its acquisition of a substantial Mexican beer business in 2014. Beer sales increased 12 percent, helped also by favorable pricing. Included in this portfolio are Modelo Especial, Pacifico, Victoria, Corona light and Corona Extra, the best selling imported beer in the U.S. according to Constellation’s 2014 Annual Report.

Dan Wood, an equity research associate at Morningstar, contends that Constellation will be able to sustain growth in the beer sector for the next 10 years. In an interview, Wood pointed out that its beer portfolio is popular with the U.S. Hispanic population, which is projected to continue growing, and that millennials tend to drink beers at higher price point than their parents, such as imported beers or craft beers.

Wood said, “These trends are more generational; the growth in the Hispanic population and millennial spending power don’t look like they’re going to abate any time soon.”

Constellation CEO Rob Sands stated in a conference call he’s excited about the prospect of more growth in the beer business. Sands said a current brewery expansion in Mexico is progressing as planned, on time and on budget.

Sands said the company will continue to increase advertising and has invested in a joint venture glass manufacturing facility in Mexico.

Nevertheless, he declared, this is “the year of the can.” Sands said cans are “a huge growth opportunity” for the company; “around 20 percent of the company’s total business is in cans…in an overall market that’s around 50 percent cans.”

In the U.S., Sands went on, cans have gone from “sub-premium” to very premium packaging as the craft beer sector has adopted cans and customers have largely accepted them.

Wood pointed out while it remains to be seem whether customers will continue to accept cans as premium packaging, they are cheaper to produce than glass and would also allow Constellation to access consumers in stadiums, boats and beaches where glass is currently prohibited.

Staszak said that one concern for Constellation’s Mexican beer business is foreign currency fluctuations, which could adversely affect the bottom line with a strong dollar and a growing U.S. economy. But, he acknowledged, because the product is imported to the U.S. and sold in U.S. dollars he believes it’s less of an issue. “It’s a different story really, they‘re less vulnerable to currency fluctuations,” Staszak said.

Constellation’s spirit business has also posted strong results in the past year, with sales growth around 8 percent, partially due to its innovative flavor extensions.

“It’s not something I would necessarily want to drink, but hey, if it’s good for their bottom line…” said Wood. On the other hand, the company’s traditional wine portfolio has seen lackluster performance. “Anytime you have a portfolio, especially a legacy portfolio that’s not growing, it’s a concern for the company,” he said.

He noted that, while volumes fell slightly, the company got some pricing relief from decreased production costs. “I’m not overly concerned because their overall volumes are growing. Wine is a very competitive market and some of the wine issues [may] come from the fact that management was a little more focused on the beer portfolio.”

Constellation also announced it will begin a quarterly dividend for the first time in the company’s 70 year history. The program is set to start for investors of record as of May 8, 2015 at 31 cents per share of Class A Common Stock and 28 cents per share of Class B Common Stock, payable May 22, 2015.

Photo at top: The company’s Mexican beer portfolio includes Corona Extra, Corona Light, Negra Modelo, Pacifico and Victoria to name a few. (Adriana Cargill/Medill)