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Corona brewer Constellation shifts away from wine as beer sales fuel earnings beat

Amelia Lucas
  • Constellation Brands announced earnings and revenue that beat Wall Street expectations Thursday.
  • The company announced Wednesday the $1.7 billion sale of about 30 brands from its wine and spirits portfolio.
  • Its Corona and Modelo beer brands helped drive quarterly sales.

Constellation Brands STZ  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.

Shares of the Corona and Modelo beer producer rose as much as 3 percent before losing those gains in premarket trading Thursday. The stock has a market value of $34.15 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. Now Constellation will be focusing on its higher-end wine brands, which have more growth opportunities.

Constellation is also gearing up to launch Corona Refresca — the brand's first non-beer beverage — nationwide during its first quarter in a bid to attract health conscious consumers, particularly women.

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.

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 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 CGC 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 one threat to all alcohol categories in the U.S.

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.



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