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Constellation Brands continued to focus on its “premium-ization” strategy in the third quarter of fiscal 2020, announcing results Wednesday that showed continued gains in beer, some declines in wine and spirits, and a 20-cents-per share decline in value of its Canadian cannabis investment.
CEO Bill Newlands, reflecting on the entire decade, said the last 10 years have been an especially dynamic period of growth for the company as it made its “game changing beer acquisition” of Grupo Modelo in 2015, among other changes. He urged investors to focus on results from the core business, rather than on cannabis.
Newlands said he expects the coming decade to be just as dynamic as the last one, starting with Constellation’s investment in alcoholic seltzer coming in 2020.
The company plans to release four flavors of hard seltzer under the Corona label in the spring, aiming to claim some of the market that mostly craft brands have been capitalizing on so far. Constellation is planning to spend more than $40 million in marketing to launch the product, he said, and has already taken orders from distributors.
Newlands said research is showing seltzer drinkers are nibbling away at the beer and wine markets, and that’s expected to be an ever-larger factor in the near future. In 2019, 60 million cases of hard seltzer were sold, he said, but that is expected to grow two or three times in 2020.
To help boost Canopy Growth, the cannabis company Constellation has invested in, Constellation’s chief financial officer, David Klein, will become CEO of Canopy, starting next week. Meanwhile, Constellation elevated Grant Hankinson, a senior vice president for core development involved in expansions and acquisitions, to replace Klein.
Constellation reported base earnings per share of $1.85, an increase of 29 cents over the same quarter last year, but the cumulative earnings for the fiscal year were down $2.17 to $9.04 per share. A cash dividend of 75 cents per share of Class A common stock, and 68 cents per share of Class B common stock was declared, payable Feb. 25. The cash dividends are each up a penny from the third quarter a year ago.
Beer sales, accounting for more than half the company’s revenue, were up by $100 million, or 8.3 percent, while wine and spirits revenue was down by $74 million, or 9.7 percent.
In transactions, Constellation sold off another chunk of its business to Gallo, in an ongoing set of deals, but at the Federal Trade Commission’s guidance, eliminated some of the lines it had intended to sell Gallo, such as dessert and sparkling wines. It also agreed to sell its Nobilo Wine brand to Gallo for $130 million in the first half of the coming fiscal year, allowing Gallo an entry into the New Zealand market.
The third quarter also saw an agreement to divest Ballast Point beer to Kings & Convicts Brewing. Constellation paid $1 billion for the San Diego beer brand four years ago but more recently estimated its worth at $17 million.
Newlands pointed to some positive changes in the Canadian cannabis market that are expected to improve sales there. Notably, the government will increase the number of retail outlets where cannabis can be sold starting in March. At the same time, the portion of cannabis purchased from legal suppliers grew from 23 percent in 2018 to nearly 50 percent in 2019, Newlands said. And an assortment of hemp products, such as lotions and gels, are starting to become more available in Canada.
“We couldn’t be more excited to see these products in the marketplace,” he said.
Klein said as part of the company’s focus on premium brands, it will continue to sell off the labels it hadn’t been able to include in the Gallo deal.
The company noted that among most popular wines as documented on Wine.com, Constellation’s Kim Crawford 2018 Sauvignon Blanc and Meiomi’s 2017 Pinot Noir hold the number one and three spots. Constellation owns two other labels in the top 100 list.
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