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Constellation Brands said strong beer sales helped it to beat Wall Street’s expectations for its fiscal fourth-quarter as it positions itself to adapt to changing consumer tastes.
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Shares of the Corona and Modelo beer producer rose 4 percent in morning trading Thursday. The stock has a market value of $34.43 billion.
U.S. consumers have increasingly shunned beer and cheap wine, according to IWSR data. Health conscious consumers are skipping alcohol altogether. Those who still drink are choosing spirits, higher value wine or premium beer, as well as low-calorie options.
The company announced Wednesday that it has agreed to sell about 30 brands from its wine and spirits portfolio to E. & J. Gallo Winery for $1.7 billion. CNBC previously reported that Constellation had hoped to fetch as much as $3 billion for its wine business but agreed to the smaller deal with Gallo. The proceeds from the deal will pay down the company’s debt.
Now Constellation will be focusing on its higher-end wine brands, which have more growth opportunities. For the first time, it has sponsorship plans for several of its wine brands for the PGA Tour, U.S. Tennis Association and several NFL teams.
Constellation is also gearing up to launch Corona Refresca — the brand’s first non-beer beverage — nationwide this month in a bid to attract health conscious consumers, particularly women.
“Corona Refresca brings a completely new drinker to the Corona franchise,” CEO Bill Newlands told analysts on his first conference call as chief executive.
Net sales during the quarter ended Feb. 28 rose 2 percent to $1.8 billion, beating Wall Street forecasts of $1.74 billion.
Beer sales jumped 9.3 percent to $1.09 billion from $997 million a year earlier. The company said that its beer business was the top U.S. market share gainer during the holiday season, thanks in large part because of the success of its Modelo Especial, Corona Premier and Corona Familiar beers.
The brewer plans to keep growing the two beer brands by increasing its marketing and advertising spend, with a focus on sports.
On the other hand, revenue from its wine and spirits portfolio declined by 7.6 percent to $707.1 million from $765.0 million from the previous year. Constellation highlighted Svedka Vodka, the number one imported vodka in the U.S., as one brand seeing strong sales growth after launching a new market campaign to improve brand awareness.
The company said that it expects fiscal 2020 comparable earnings per share in a range of $8.50 to $8.80, excluding Canopy Growth equity earnings. Last year, Constellation bought an approximately 38 percent stake in the Canadian marijuana company, giving the beverage company a firm toehold in the rapidly growing cannabis industry. IWSR and BDS Analytics have named legalized cannabis as a threat to all alcohol categories in the U.S.
Newlands said that it excluded Canopy from its 2020 outlook because of continued uncertainty about the industry, ranging from potential U.S. regulation on CBD products to brick-and-mortar cannabis sales in Ontario beginning this week. He told analysts that Constellation shares Canopy’s view that cannabis could be an ingredient in consumer products.
Constellation reported fiscal fourth-quarter net income of $1.24 billion, or $6.37 per share, up from $910.5 million, or $4.56 per share.
Excluding the costs of the Canopy Growth investment, the company earned $1.84 per share during its fiscal fourth quarter, topping the $1.71 per share expected by analysts surveyed by Refinitiv.
The company expects that beer revenue will continue to grow, forecasting net sales growth between 7 to 9 percent during fiscal 2020. It is also forecasting that wine and spirits sales will fall as much as 25 to 30 percent this year due to the pending sale.