Spirits sales beat wine in Constellation Q1

Svedka vodka owner Constellation Brands has reported a 2% sales increase to US$2.09 billion during its first quarter, with spirits sales outperforming wine.

Reported operating income for the beer, wine and spirits maker grew 9% to US$698m in the three months to 31 March 2019.

Constellation’s wine and spirits unit declined by 7.8% to US$619m. While Constellation’s overall wines sales posted a downturn, spirits sales rose by 6% in the quarter to US$84.8m.

The firm said sales of Svedka vodka were driven by “strong velocities” across the range and bolstered by the brand’s Bring Your Own Spirit campaign, and the introduction of Svedka Rosé in January 2019.

In April this year, Constellation Brands agreed to sell approximately 30 wine and spirits brands to E&J Gallo Winery for US$1.7bn. The deal, which mostly relates to wine brands, includes its Paul Masson brandy and Black Box vodka brands.

The company expects the transaction to be completed in the second half of the 2019 calendar year. As a result of the deal, Constellation expects fiscal 2020 net sales and operating income for its wine and spirits arm to decline 20%-25% and 25%-30%, respectively.

Constellation said that proceeds from the sale are predicted to be used mostly for the repayment of debt. A cost reduction plan is anticipated to be executed for fiscal 2020 and 2021 to address stranded costs of US$130m.

“As we kick off fiscal 20, I’m pleased with our strong start to the year,” said Bill Newlands, president and CEO of Constellation Brands. “Our wine and spirits transformation strategy is working, led by our collection of power brands, which delivered industry leading depletion growth of 4% during the quarter.”

Constellation’s beer business grew sales by 7.4% to US$1.47bn. Newlands said the firm’s beer portfolio, along with “innovation initiatives”, will push Constellation’s targeted goals for the year.

The group’s acquisition of a minority stake in Canadian cannabis producer Canopy Growth Corporation was reported to offer a US$1.6bn “unrealised gain”.

Canopy Growth equity earnings for the first quarter of fiscal 2020 equalled a loss of US$106m on a reported basis and a loss of US$54.4m on a comparable basis.

The last few months have seen Constellation make a number of acquisitions. The firm expanded its footprint in American whiskey with the purchase of a majority stake in Tennessee-based Nelson’s Green Brier Distillery in May.

The acquisition came just weeks after the US group bought a minority stake in Los Angeles-based Mezcal El Silencio in April – its first move into the mezcal category.

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