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Constellation takes US$2.5 billion hit on wine and spirits
Constellation Brands is taking a US$2.5 billion hit on its wine and spirits business this quarter, despite reporting strong beer sales.
The global drinks giant is taking up a goodwill charge of as much as $2.5 billion due to slow sales in the wine and spirits market and has downgraded its net sales growth forecast to between 4% and 6%, which is down on a previous estimate of 6% to 7%.
Despite the news, shares remained steady at the time of writing, and the firm reported much stronger results on its popular beer brands, which include the US number one brand Modelo Especial.
As a result of the news, Constellation said that it expects earnings per share for 2025 to be significantly lower, at about $3.05 to $7.92, compared to an earlier range of $14.63 to $14.93.
Previous results
It follows news in July that cheered investors when it beat consensus profits estimates for the three months from March to May, when it reported the earnings per share hike from a previous outlook that had positioned them at $13.40 to $13.70.
Those results were based largely on buoyant demand for its Mexican beers, Modelo and Corona.
In its last quarter Constellation achieved net sales of $2.66 billion, marginally below estimates of $2.67 billion.
Beer
Beer demand had risen by 8.3% boosted by wider consumption (sales to distributors were up 7.6%) and benefitting from selective price rises and the results of cost cutting flowing through.
Modelo Especial is now firmly ensconced as America’s biggest beer as measured by dollar sales and Constellation’s operating margin in its beer business rose 260 basis points to 40.6%.
But back in July, Constellation had sent out something of a warning on wine and spirits, reporting sluggish demand in line with the American consumer slowdown and switch to beer.
Wine and spirits sales fell by 5.1% compared with the same period last year in July, and moving in line with recent market trends as shown in Brown Forman’s figures for the first quarter.
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