Constellation Brands leads the way

Amid tumbling share prices on Wall Street, one drinks company stands out like a beacon following a set of results no analyst had predicted  – Constellation Brands.

Constellation Brands CEO Rob Sands (Photo: Constellation)

The company’s shares gained more than 40% in 2015 and yesterday it boosted shareholders further by announcing a 22% increase in third-quarter profits to $270.5 million (£185m), far outstripping estimates.

Most of the growth is attributable to the beer division, which now dominates Constellation. In 2013 it took full control of Mexican brewer Grupo Modelo, and such is the burgeoning demand that Constellation is to spend $1.5 billion (£1.03bn) on building a second Mexican brewery just to keep pace with soaring US demand for Corona Extra and Modelo Especial.

But Constellation’s wine and spirits arms are also thriving. Sales rose by 3%, due largely to premiumisation of prices. That trend is boosting growth for Meiomi, a Pinot Noir brand that it bought for $315m (£215m) only in August. Sales soared by 80% during the quarter.

Chief executive Rob Sands said that the spirits portfolio achieved net sales growth of 2%, with Casa Noble Tequila “exceeding our expectations so far this year with continuing share gains.”

He was also bullish about US wine sales, highlighting a trend that will encourage Australia’s Treasury Wines Estates, which recently bought Diageo’s American wine interests.

“Our focused brands are gaining again,” he said, “driving positive results for the quarter led by brands like Woodbridge by Robert Mondavi, which is holding the number one Cabernet Sauvignon position with the highest dollar and volume sales.

“The wine industry has actually accelerated quite considerably and is now one at of the most robust points that it’s ever been… In the past 12 weeks, the wine industry has accelerated by over 6% growth.

“And probably even more importantly if you look at the Premium Plus segment, which is a segment of $8-plus. That is what we would be primarily interested in. The industry has accelerated to double digit growth in dollar terms over the past 12 weeks, 11.2% for the industry.”

With Constellation in such buoyant mood, analysts wonder where it will choose to spend its supercharged free cash flow. Already it is starting to pay dividends for the first time in the company’s 70-year history and last year it bought craft brewer Ballast Point whose sales in premium outlets have more than doubled since.

Such is Constellation’s financial strength that analysts see Sands hitting the takeover trail as soon as a promising target appears.