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Constellation delivers 7% net sales growth in FY

US drinks firm Constellation Brands has reported a 7% net sales growth to US$8.1 billion in its fiscal 2018/19, with wine and spirits sales predicted to decline by up to 30% for fiscal 2020.

Paul Masson brandy will be sold as part of the US$1.7 billion deal with E&J Gallo

In the 12 months to 28 February 2019, the Svedka vodka maker saw its operating income increase to US$2.6bn. The company’s fiscal year was bolstered by the double-digit net sales and operating income growth of Constellation’s beer business.

The group’s wine and spirits arm saw its net sales fall by 0.2% to US$2.92bn, while operating income declined by 2.9% to US$771.2 million.

Wine and spirits benefited from “double-digit distribution gains” for High West whiskey and wine brands Kim Crawford, Meiomi, Ruffino Sparkling and Cooper & Thief.

In the three months ending 28 February 2019, net sales of wine and spirits dropped by 7.6%. During the fourth quarter, High West and wine brands Kim Crawford, Meiomi, Ruffino and the Prisoner portfolio posted double-digit consumer takeaway trends in IRI channels.

Svedka vodka witnessed “strong sales growth” in the fourth quarter boosted by the brand’s new Bring your own Spirit marketing campaign, which “improved consumer brand awareness and purchase intent”.

Constellation’s full-year and fourth quarter 2019 results were announced just after the company agreed to sell approximately 30 wine and spirits brands to E&J Gallo Winery for US$1.7bn.

In a statement, Constellation confirmed the sale includes its Paul Masson brandy and Black Box vodka brands. The deal mostly relates to Constellation’s wine portfolio.

Bill Newlands, president and CEO, said: “We’ve positioned our wine and spirits business for success with our announced plans to sell a portion of the business, which enables us to continue to strategically focus on our powerhouse, high-margin, high-growth brands.

“Overall, we’re confident in our ability to drive top-line growth of mid-to-high single digits over the next three to five years across our entire business.”

Looking ahead to fiscal 2020, the company expects net sales of its wine and spirits to decline by 25-30% and operating income to drop by 30-35% as a result of the divestment.

Proceeds from the deal are expected to be used mainly for the repayment of debt. This is expected to have an approximate US$40 million favourable impact on fiscal 2020 interest expense.

Constellation completed its US$4bn additional investment in cannabis producer Canopy Growth Corporation in November last year. For Q4, Canopy Growth equity earnings and related activities made a loss of US$2.6m on a reported basis.

David Klein, chief financial officer, said: “In fiscal 2018, we generated record operating cash flow of more than US$2.2 billion, which enabled a return of more than US$1 billion to shareholders through a combination of dividends and share repurchases.”

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