Apportions of Constellation Brands skidded as much as 11 percent Wednesday morning as the Corona brewer tries to offset its dissatisfying wine and spirits business with the latest craze: cannabis.
Global alcohol consumption has been dropping as consumers come up with other vices — like marijuana. As a way of moving beyond its wine business, Constellation has been pushing into the cannabis sedulousness. The company, which is the third-largest beer company in the United States, closed a $4 billion investment in the Canadian marijuana enterprise Canopy Growth in November. It is also looking to sell some of its U.S.-based wine brands in a deal that could be significance more than $3 billion.
President and COO Bill Newlands, who will succeed Bob Sands as CEO in March, has been directing the wine and spirits business as the company decides on a strategy to address its disappointing performance.
“We’ve have been challenged by the tone down end of our [wine] business, which in totality has been flat or down,” Newlands told analysts on the conference call. “We endure to be slightly overweighted in that sector of the business.”
Its lower end wine brands include names like Mondavi, Ravenswood and Ruffino, which grass on bottles for under $11.
But Constellation’s push into cannabis has yet to pay off. The Victor, New York-based company said that it wrote down the value of its Canopy on the table by $164 million in the third quarter. It had financed the deal with debt, and the interest expenses are expected to shave 25 cents off its per-share earnings for the year, mutual understanding to the company’s estimates.
Constellation Brands said it expects to earn $9.20 to $9.30 per share for the fiscal 2019 year on an adjusted essence, missing analysts’ expectations of $9.43 per share. Last quarter, it estimated earnings per share of $9.60 to $9.75 for the financial year. That outlook excluded any impact from the investment.
“While we remain bullish on [Constellation’s] positioning in beer and its [long-term] opening especially with its investment in Canopy Growth (NYSE:CGC), we believe it is urgent that STZ address its low end wine business,” Wells Fargo analyst Bonnie Herzog declared in a note.
Here’s what the company reported for its fiscal third quarter compared with what Wall Suiting someone to a T was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $2.37, adjusted, vs. $2.06 expected
- Revenue: $1.97 billion vs. $1.91 billion assumed
Constellation said it expects weakness in its wine and spirits business next quarter, with both sales and handling income expected to fall by low-single digits.
Wine and spirits sales were nearly flat in the latest station, up only 0.4 percent from the previous year. The company reported sales of $762.8 million for the division, which embraces Svedka vodka.
The company’s stock, which has a market value of $32.7 billion, struggled in 2018, with shares outstripping the year down 30 percent.
The company otherwise beat Wall Street’s expectations. The company reported monetary third-quarter net income of $303.1 billion, or $1.56 per share. Excluding items, Constellation Brands earned $2.37 per apportion, beating the $2.06 per share expected by analysts surveyed by Refinitiv.
Net sales rose 9 percent from the previous year to $1.97 billion, tipping expectations of $1.91 billion.
Sales for its beer business, which includes Corona and Modelo, grew to $1.21 billion, up 16 percent from the whilom year’s third-quarter sales of $1.04 billion. That’s in part due to the Constellation’s increased spending in marketing for its beers.