Constellation Brands books large loss on wine and spirits, but beer sales rise

By Tomi Kilgore

Modelo, Corona beer brewer tops profit expectations, after excluding $2.25 billion impairment charge

Shares of Constellation Brands Inc. staggered to a sharp loss on Thursday, after the parent of Modelo and Corona beer brands beat adjusted profit expectations, but only after excluding a large non-cash loss booked for writing down the value of its wine and spirits business.

Overall sales rose, as growth in the beer business offset weakness in wine and spirits, but came up a bit shy of expectations.

"[W]e continue to face incremental category headwinds in our wine and spirits business, particularly in the lower-priced segments," said Chief Executive Bill Newland on the post-earnings call with analysts, according to an AlphaSense transcript.

And Newland said that although the beer business was growing, it was being held back by the challenging macroeconomic backdrop, where rising unemployment rates have hurt consumer demand.

Looking ahead, the company nudged up its adjusted profit outlook but trimmed its view on sales growth, amid continued weakness in wine and spirits.

Newland said "the current macroeconomic environment has weighed on beverage alcohol," as well as on the broader consumer packaged goods market, but the company continued to outperform the industry and remained the top market-share gainer in the beer business.

The stock (STZ) dropped 4.1% in afternoon trading, enough to pace the S&P 500 index's SPX decliners. The selloff reversed an earlier premarket, post-earnings gain, when the stock knee-jerked as much as 2.9% higher.

For the quarter to Aug. 31, the company swung to a net loss of $1.2 billion, or $6.59 a share, from net income of $690 million, or $3.74 a share, in the same period a year ago.

Excluding nonrecurring items, such as a $2.25 billion impairment loss for the wine and spirits business, adjusted earnings per share increased to $4.32 from $3.80 and beat the FactSet consensus of $4.08.

Net sales, which excludes excise taxes, grew 2.9% to $2.92 billion, just below the FactSet consensus of $2.95 billion.

For Constellation's beer business, sales rose 5.7% to $2.53 billion, as shipments increased 4.6%, but just missed the FactSet consensus of $2.55 billion.

Depletion volume, which represents sales of Constellation's distributors to retail customers, saw growth of 2.4%, as depletions rose 5% for Modelo Especial, jumped 23% for Pacifico and gained 2% for Modelo Chelada brands, but fell 3% for Corona Extra.

The wine and spirits business, which includes Kim Crawford and Meiomi wines, Svedka vodka and Casa Noble tequila, was another story.

Constellation said that business "continues to face challenging market conditions, primarily in the U.S. wholesale channel across most price segments in the wine category."

Sales dropped 12.5% to $388.7 million, to miss expectations of $427 million, as shipments fell 9.8% and depletions sank 17.6%.

Looking ahead, the company nudged up its guidance range for adjusted EPS to $13.60 to $13.80 from $13.50 to $13.80 but trimmed its outlook for net sales growth to 4% to 6% from 6% to 7%.

For beer, the growth guidance was trimmed to 6% to 8% from 7% to 9%, but the sales outlook for wine and spirits was cut to a decline of 4% to 6% from down 0.5% to up 0.5%.

The stock has edged up 1.4% year to date, while the Consumer Staples Select Sector SDPR ETF (XLP) has rallied 12.7% and the S&P 500 index has advanced 19.3%.

-Tomi Kilgore

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10-03-24 1350ET

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