Constellation Brands Gets A Boost From Beer Sales

Posted: Apr 07, 2019



Constellation Brands Gets a Boost From Beer Sales

After wine divestiture, beverages producer to implement cost-cutting plan

Constellation has transformed itself over the past decade from a boxed-wine seller to a beverage giant brewing Corona and craft beers.

Constellation Brands Inc. STZ 6.54% said sales rose in the latest quarter as stronger beer sales helped offset weakness in its lower-priced wine brands.

Net sales for the Victor, N.Y., company, which produces Casa Noble Tequila, Cook's California Champagne and Svedka vodka, rose 2% from a year earlier to $1.8 billion. Analysts polled by FactSet expected $1.73 billion.

Beer sales in the fourth quarter rose 9.3% to $1.09 billion, driven by the Modelo and Corona brands.

Net sales in the wine and spirits segment declined 7.6% to $707.1 million. However, several high-end wine and spirits brands performed well, including Kim Crawford, Meiomi, Ruffino, the Prisoner portfolio and High West, Constellation said Thursday.

Profit rose to $1.24 billion, or $6.37 a share, up from $910.5 million, or $4.56 a share, a year earlier. Adjusted earnings totaled $1.84 a share, higher than the $1.72 a share expected by analysts polled by FactSet.

Constellation's stock rose 5.6% to $189.66 in afternoon trading Thursday. Shares are down about 16% in the last 12 months.

For fiscal 2020, the company projected adjusted earnings per share of $8.50 to $8.80. It also forecasts net sales of beer to grow 7% to 9% for fiscal 2020, while wine and spirits net sales are expected to decline 25% to 30%.

The company has transformed itself over the past decade from a boxed-wine seller to a beverage giant brewing Corona and craft beers. It has been focusing on its premium beers such as Modelo, helping the drinks company outperform competitors in a slowing beer market. It has also made a big bet on the future of cannabis-infused drinks, investing about $4 billion in Canadian cannabis producer Canopy Growth Corp.

Constellation is also rolling out new drinks targeted at women, including Corona Refresca, a flavored malt beverage that is being introduced nationally this month. The company is testing Alera, a different flavored malt beverage it said is designed to appeal to Hispanic women, and Wild(ish), a line of hard seltzers and teas. Rival brewers have had successes with hard seltzers as sales of those drinks have surged over the past two years.

On Wednesday, Constellation Brands reached a deal to sell 30 wine brands, including Clos du Bois and Mark West, to California-based E. & J. Gallo Winery for $1.7 billion. Constellation had been looking for a buyer of its low-price, low-margin wines, which have been a drag on its earnings, as more U.S. wine drinkers trade up for pricier brands.

The divested wines last fiscal year accounted for $1.1 billion in sales, or about 40% of the company's wine and spirits sales.

Proceeds from the deal are expected to be used primarily to repay debt, Constellation said. As of Feb. 28, the company had $11.76 billion in long-term debt.

Following the Gallo transaction, Constellation Brands said it would implement a cost-cutting plan for the current and next fiscal year. The company expects to cut between $35 million to $55 million in costs in fiscal 2020 and $75 million to $95 million in costs for fiscal 2021.

The company also expects to record a restructuring charge in the current quarter after developing the cost-reduction plan.

By Aisha Al-Muslim April 4, 2019 Source: WSJ.com

Jennifer Maloney contributed to this article.



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