Spirits struggle in Constellation Brands’ Q2 results

Constellation Brands reported a 2% net sales increase to US$2.3 billion in its second quarter, however the group’s wine and spirits arm recorded a 9% drop.

Reported operating income for the beer, wine and spirits maker fell 6% to US$720m in the three months to 31 August 2019.

The US firm has also repurchased approximately 266,000 shares of common stock for US$50 million.

“We continue to deliver impressive beer business operating performance and cash flow results,” said chief financial officer David Klein.

“The share repurchases we made during the quarter reflect the confidence we have in our long-term business model, and our ongoing commitment to return cash to shareholders.

Constellation’s beer business delivered net sales growth of 7.4% to US$1.64bn.

The wine and spirits segment declined 8.9% to US$703m for the period. Spirits fell 8% to US$92.5 million, while wine declined by 9% to US$611.1m.

In April this year, Constellation Brands agreed to sell approximately 30 wine and spirits brands to E&J Gallo Winery for US$1.7 billion. In its latest financial results, Constellation said the deal is expected to close by the end of fiscal 2020.

The wine and spirits arm’s performance “continues to be impacted by transition activities with distributors who are repositioning for ownership of brands upon close of the pending transaction with EJ Gallo”.

Svedka secured “ongoing share gains” in the US vodka sector, boosted by the brand’s Bring Your Own Spirit marketing campaign.

Constellation also said it was “primed” for the upcoming Christmas period with “impactful innovation” planned for key wine and spirits brands in the second half of the fiscal year.

The company expects fiscal 2020 net sales and operating income for its wine and spirits business to decline 15-20% and around 25%, respectively, as a result of “updated assumptions for transaction timing”.

The guidance also includes the estimated impact from the sale of Canadian whisky Black Velvet to Heaven Hill, announced in August 2019. Proceeds from both this transaction and the E&J Gallo deal will be used mainly for debt repayment.

Acquisition streak

The past 12 months has seen Constellation acquire majority and minority stakes in a number of US-based spirits producers.

The group acquired a minority stake in New York-based whiskey and gin producer Black Button Distilling in February 2019.

This was followed by the purchase of American whiskey producer Nelson’s Green Brier Distillery in May.

A few weeks later, Constellation Brands acquire a minority stake in Los Angeles-based Mezcal El Silencio.

August 2019 saw the US firm buy a minority stake in North Carolina-based spirits producer Durham Distillery through its Focus on Female Founders programme.

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