Constellation buys minority stake in Catoctin

6th January, 2017 by Amy Hopkins

Constellation Brands has acquired a minority stake in organic spirits producer Catoctin Creek Distilling Company, at the same time as seeing a 10% increase in Q3 net sales.

Constellation has continued its American whiskey drive after taking a minority stake in Virginia-based Catoctin Creek Distilling Company

Constellation has continued its American whiskey drive after taking a minority stake in Virginia-based Catoctin Creek Distilling Company

In its third quarter fiscal results, the US drinks group said it had made an unspecified “minority investment” in Virginia-based Catoctin, which produces rye whiskey and gin from organic sources.

Catoctin will use the funding to increase production, hire more staff and increase marketing.

“In order to expand our production and portfolio, we needed the right partner for the next level of growth,” said Becky Harris, president and chief distiller of Catoctin Creek, who founded the company with her husband, Scott.

“Constellation has a strong commitment to this category, and with their expertise and support, we look forward to bringing our Virginia whiskey to the world with the same team and exceptional product quality.”

The acquisition marks Constellation’s latest drive to increase its footprint in the fast-growing American whiskey category.

The firm assumed complete ownership of Utah-based High West Distillery in early October 2016, at the end of its second quarter, for US$137 million. Two weeks later, Constellation acquired a minority stake in Kentucky’s Bardstown Bourbon Company.

At the start of 2016, the group bought a minority stake in the recently reopened Nelson’s Green Brier Distillery through its investment unit, Constellation Ventures.

In Q3, Constellation completed the acquisition of Charles West Wines for US$121m and the Obregon brewery in Mexico for US$583m, at the same time completing the sale of its Canadian wine business for US$776m.

Total reported net sales in Q3 increased to US$1.81 billion, while operating income shot up 19% to US$534m. The New York-headquartered company also generated US$1.42bn of operating cash flow.

Net sales of its wine and spirits portfolios grew 5% in the quarter, while beer net sales grew 12%.

“During the quarter, our wine business gained IRI volume and dollar share driven by strong depletion growth for our ‘focus brands’, and became the [number one] share gainer in the US wine category,” said Rob Sands, president and CEO of Constellation Brands.

“We also successfully integrated Charles Smith and High West into our portfolio. We’re driving strong growth trends for these brands, which are enabling us to capitalise on US market trends that favour high-end wine and spirits.”

For the first nine months of fiscal 2017, operating cash flow totalled US$1.42bn, an increase of 30%.

Looking forward to the full 2017 financial year, Constellation estimates its combined wine and spirits business will see net sales growth in the mid single-digit range and operating income growth in the mid to high single-digit range.

In November 2016, Constellation’s board of directors authorised a new share repurchase programme of up to US$1bn of the company’s common stock. During third quarter of fiscal 2017, the company repurchased 2.4m shares of common stock for US$367m.

Constellation recently achieved ‘investment grade’ status.

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