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Constellation Brands’ wine and spirits sales drop 9%

US drinks firm Constellation Brands has reported a 9% net sales decline for its wine and spirits business in the third quarter of its fiscal year.

Constellation Brands’ deal with E&J Gallo will no longer include the sale of Paul Masson brandy

In the three months to 30 November 2019, reported net sales of the group’s wine and spirits unit hit US$688.8 million, while operating income fell by 12.4% to US$180.4m.

Last month, Constellation Brands’ US$1.7 billion deal to sell 30 drinks brands to E&J Gallo Winery was altered after “competitive concerns” from US government body the Federal Trade Commission.

The revised deal will see Paul Masson brandy, Cook’s California Champagne and J Roget American Champagne excluded from the sale, bringing the total transaction price to US$1.1bn. The deal is expected to close by the end of fiscal 2020.

Due to the altered deal, the company has revealed a cost-cutting plan to save US$130m, which will be realised between fiscal 2021 to fiscal 2022.

Constellation said it expects its wine and spirits business to decline by between 8% and 10% in fiscal 2020 as a result of “updated assumptions surrounding the close of the Gallo transactions”.

‘Impactful innovation’

The company said that its innovation pipeline in wine and spirits is “primed with impactful innovation” for Q4 2020.

Svedka vodka “continued its hot streak with ongoing share gains” in the vodka category in the US, rising by nearly 8% in IRI channels.

The firm’s beer business continued to drive growth for the company, with a reported Q3 net sales increase of 8.3% to US$1.3bn.

“It’s shaping up to be a dynamic year at Constellation,” said Bill Newlands, president and CEO at Constellation Brands.

“We delivered strong performance in Q3 powered largely by our beer business and we are increasing our EPS [earnings per share] and cash flow guidance for the year.

“Our wine and spirits transformation strategy is gaining traction and our revised agreement with Gallo paves the way for accelerated growth and margin performance for this business going forward.”

In addition, Constellation Brands said it had recognised a US$223m unrealised net gain since its initial investment in cannabis firm Canopy Growth Corporation in November 2017. It also reported a US$534m decrease in the fair value of Canopy investments for the third quarter of fiscal 2020.

In November 2019, Canada’s Canopy Growth Corporation began production of cannabis-based drinks following the opening of a new facility.

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