Alcoholic beverage producer Constellation Brands (STZ) reported mixed fiscal 2023 third-quarter earnings on Thursday before the opening bell. While the results came in short of our expectations, we see the subsequent drop in the Corona beermaker’s share price as chance for investors to buy up the stock. Net sales climbed 5% year-over-year, to $2.44 billion, ahead of Wall Street’s expectations of $2.39 billion, according to estimates compiled by Refinitiv. Adjusted earnings-per-share tumbled 9% compared with same period a year prior, to $2.83 a share, below the $2.88 a share predicted by analysts, Refinitiv data data showed. Excluding equity losses from Constellation’s stake in cannabis company Canopy , adjusted earnings came in at $3.01 per share. In addition to the headline numbers, adjusted operating income of $770 million was down 7% year-over-year and below the $786 million consensus estimate, according to FactSet. Operating cash flow came in at $2.3 billion, significantly ahead of analysts’ forecasts for $817 million, while free cash flow of $1.6 billion came in well ahead of the $464 million estimate. Shares of Constellation fell more than 9% Thursday afternoon and were trading around $210.30 apiece. Bottom line All in all, this was not the quarter we were looking for. While strong sales performance and an upward revision to beer-sales growth for the year speak to sustained demand for the company’s leading brands, input-cost inflation plagued profit margins. That, along with recession fears, forced management to lower their full-year forward guidance, though the revised guidance is still above expectations. The other fly in the ointment was beer depletions, which decelerated quarter-over-quarter due to headwinds that developed late in the third quarter, primarily a need to raise prices more than usual as a result of inflation. That said, management expects the impact of the price hikes to settle in the coming months and anticipates depletion trends to further normalize by fiscal 2024. If depletion growth picks up in the next few months, shares should recover quickly. In addition to signs of persistent demand, we take solace in Constellation’s robust cash generation and ability to raise prices while simultaneously taking market share. Cash is king and that’s even more true against an uncertain economic backdrop. While today’s market reaction is obviously not what we like to see, we do think it represents a buying opportunity. Moreover, the company is now more in the hands of common shareholders than ever before thanks to the recent elimination of its dual-class share structure . However, given our expectations that the Federal Reserve will continue to raise interest rates in the first half of 2023, along with management’s lowered forecast, we are reducing our price target to $260 a share, down from $300. Company results Beer sales of $1.89 billion, up 8% year-over-year, were better than analysts’ expectations of $1.82 billion. Operating…
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