Constellation Brands (NYSE: STZ) traded as much as 4% higher in pre-market trading on Wednesday after the company beat EPS estimates by 30 cents a share. The company, which owns brands including Corona Beer, Svedka Vodka, and several wine brands, also has a large stake in cannabis producer Canopy Growth (NYSE: CGC).

During the third quarter, the company earned $2.14 a share on a non-GAAP basis vs the $1.84 analysts expected. GAAP EPS of $1.85 were $0.26 ahead of expectations. When equity losses associated with its Canopy Growth stake are excluded, non-GAAP EPS were $2.39 for the quarter.

Third-quarter revenue of $2 billion was 1.5% higher than a year earlier and $50 million ahead of consensus estimates.


Beer Segment Continues to Drive Growth

Sales in the beer segment grew 8.3% to $1.31 billion, while operating income grew 14.2% to $514 million. Sales for the wine and spirits businesses fell 9.7% to $688 million, while operating income fell 12.4% to $180 million.

Constellation’s quarterly operating cash flow was $2.1 billion while free cash flow was $1.5 billion. It’s worth noting that the quarterly net income of $360 million was largely attributable to a $658 million provision for an income tax benefit.


Loss on Cannabis Investment Increases by 65%

During the quarter Constellation wrote the value of its stake in cannabis grower Canopy Growth by another $534 million, bringing the total write-down on their investment to $1.4 billion.

The company also recorded a $46.2 million gain on a reported basis for its share of Canopy Growth’s equity earnings and related activities. On a comparable basis, a $71.1 million loss was recorded. The net reported unrealized gain on the Canopy investment is $223 million.

During the nine months ended Nov. 30, the value of Constellation’s intangible assets, goodwill and equity investments fell by nearly $2.5 billion, with most of the loss attributable to its Canopy investments.


Outlook Raised

Constellation raised its full year EPS outlook to between $9.45 and $9.55, up from the previous $9 to $9.20 range. This is well ahead of the Wall Street’s $8.59 average estimate. However, the company did note that “our guidance does not reflect future changes in the fair value of the company’s investments in Canopy’s warrants and convertible debt securities.”

About Author

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.