Constellation cuts forecast as wine sales slow

The makers of Corona and Modelo beer has cut its projected forecast following slowing wine sales in its third quarter results and expenditure relating to its $4 billion cannabis investment, sending shares sliding by 10% on Wednesday.

Constellation Brands CEO Rob Sands

In its third quarter results, Constellation Brands reported a net income of $303.1 billion. Net sales rose 9% from the previous year to $1.97 billion, topping expectations of $1.91 billion. Net sales in the third quarter rose 9% to $1.97 billion and topped the average estimate of $1.91 billion.

However Constellation said it now expects earnings per share for fiscal 2019 to be between $9.20 and $9.30, down from its prior forecast of $9.60 to $9.75, blaming slower wine sales at the lower end and expenses relating to its $4 billion investment in cannabis company, Canopy Growth.

Weak results from Canopy Growth in November brought down Constellation’s earnings, resulting in a $164 million decrease in the fair value of its investment in the third quarter.

At the same time, Constellation has been struggling to boost sales in its wine and spirits business division, with net sales rising by a marginal 0.4% to $759 million in the third quarter, with slowing sales of sub $11 wines blamed for dragging the category down.

The company said it expects net sales and operating income in wine and spirits to “decline low-single digits” throughout 2019.

The report said: “Focus on higher retail price points for the wine business is paying off. In the last 52 weeks, Constellation outperformed the U.S. wine market at the greater than $11 price point with several of our Focus Brands growing double digits in IRI channels during this timeframe, including Kim Crawford, The Prisoner and Meiomi.

“Depletion performance for the below $11 price point continues to be challenged, resulting in an overall fiscal year-to-date depletion decline of 2%.”

Beer proved to be the strongest player, with sales growing to $1.21 billion, up 16% from the previous year’s third-quarter sales of $1.04 billion. Constellation expects net sales of beer to grow between 9-11% in 2019.

”The results delivered by our beer business mark the highlight of our third quarter performance,” said Rob Sands, executive officer of Constellation. “The Modelo and Corona brand families continue to be on fire, fuelled by strong velocities, excellent distribution gains and highly incremental innovation. Our leadership in the high-end U.S. beer industry positioned us to be the most significant growth contributor at retail during the quarter.”

Bill Newlands, president and chief operating officer, who is set to take over from Sands in March, blamed the low end of its wine portfolio for weakness in the business and said the company would be reviewing its portfolio to focus on its higher end brands.

He said: “Our focus on innovation is driving incremental growth for our beverage alcohol portfolio. We recently introduced Meiomi Sparkling, Crafters Union canned wine and Mi CAMPO tequila, which tap into fast growing sectors of the Wine and Spirits market. Corona Premier continues to drive strong growth as a trade up for consumers who want a low calorie, low carb option. Our innovation pipeline will continue to fuel growth for our business in the years ahead.”