Constellation Brands’ Beer Sales Increase While Wines and Spirts Fall

Constellation Brands, a leading international producer of beer, wines and spirts experienced a successful third quarter according to a company press release. The alcoholic beverage giant said they experienced an increase in sales for their beer brands but their wine and spirts sector had a decrease in revenue for this quarter.

Constellation Brands reported their third-quarter earnings to be $491.1 million, which is significantly higher than the $405.9 million they earned a year ago. While their earnings had increased for this quarter, revenue fell 0.6 percent to 1.8 billion, missing Wall Street estimates and reducing company share value by nearly 2.4 percent. This decrease in revenue led the company to initiate a $3 billion share buyback program.

On the upside, Constellation’s beer sales continue to dominate their total product sales and the company projects net sales growth for this fiscal year to be between 9 and 11 percent. According to the release, Corona Extra and Modelo Especial brands led Labour Day and Thanksgiving sales in the US markets. Their entire beer segment dominated 80 percent of total US beer category growth. Constellation Brands claim that their products are number four on the “Top 10” share gainer positions.

The company seems to be benefiting from the growing Hispanic population in the US as their Mexican beers (including Corona, Modelo, Especial and Pacifico) grow margins and market share. Company executives brought up the growing Hispanic population at a recent industry conference, claiming that the number of legally aged Hispanic drinkers will grow from the current 36 million to 46 million by 2025.

Constellation’s weak spot is its wine and spirits segment. The company expects net sales in this category to fall by between four percent and six percent for the rest of fiscal 2018.

However, Wells Fargo Securities analyst Bonnie Herzog, noted the company’s growth potential to be high. However, she did mention her concerns about the declining wine and spirits category in a Barron’s report.

“We continue to think STZ’s [Constellation Brands] momentum is strong and are encouraged by its continued op profit growth and improved FY18 outlook,” said Herzog. “We expect the stock to react favorably. STZ remains our top beverage stock pick. What We Liked: (1) Stronger beer op income growth outlook for FY18; (2) Impressive margin expansion in beer; (3) 1.1M share repurchase plus new $3B share repurchase program. Concerns / Headwinds: (1) Declining depletions in wine; (2) Soft beer volume & net pricing; (3) Soft wine & spirits op margin.”

Constellation’s recent investments might also encourage company growth this year. Their recent acquisition of a 9.9 percent stake in Canadian marijuana company Canopy Growth might deliver a lot of revenue as the recreational use of the plant becomes legal in all Canadian provinces this summer. The $191 million deal will allow Constellation to manufacture cannabis infused beverages set to launch after legalization.