Constellation raises profit forecast on booze sales, but takes a hit on cannabis
The brewer has been bolstering its alcohol portfolio as consumers switch to hard seltzers from high-calorie beers and spirits
Bengaluru — Constellation Brands beat Wall Street estimates for quarterly sales and profit on Wednesday as it sold more of its beers, such as Corona Premier and Modelo Especial, prompting the company to raise its full-year earnings forecast.
The brewer has been bolstering its beer portfolio through launches of variants, such as Modelo Chelada Limón y Sal and Corona Refresca, to woo consumers switching to trendier alternatives, such as Boston Beer’s Truly and White Claw hard seltzers from high-calorie beers and spirits.
Constellation plans to add a hard seltzer [soda water] to its Corona portfolio this year, looking to tap into the surging popularity of the alcoholic carbonated drink among millennials.
However, the company recorded another decrease in the fair value of its more than $4bn investment in Canadian cannabis producer Canopy Growth in the third quarter. Constellation was one of the first major alcohol producers to enter the burgeoning cannabis industry when it took the stake in 2017, but Canadian pot producers have struggled due to a slower rollout of legal cannabis.
The company said on Wednesday that it wrote down the fair value of the investment by $534m in the third quarter, after reducing it by $839m in the prior quarter.
“This was a complicated/messy quarter so we think investors will need cleaner results and some input on the company’s outlook for the 2021 full year before they can get back on board with the story,” SunTrust Robinson Humphrey analyst Bill Chappell said.
The brewer now expects to earn $9.45 to $9.55 per share for its fiscal 2020, excluding the impact from its investment in Canopy Growth on a comparable basis, up from its prior forecast of $9 to $9.20.
Sales of beers, its biggest and more profitable unit, rose 8.3% to $1.31bn in the three months ended November 30 2019. Operating margin in the unit rose 200 basis points to 39.3% as higher pricing countered a jump in marketing expenses.
Sales in its struggling wines and spirits segment fell for the fourth consecutive quarter, dropping 9.7% to $688.8m. Net sales climbed 1.4% to $2bn in the third quarter, beating the average analyst estimate of $1.95bn, according to IBES data from Refinitiv.
Excluding one-time items, Constellation earned $2.14 per share, beating estimates of $1.83. Shares of the company rose 1% in early trading. They gained about 18% in 2019.
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