Constellation’s wine and spirits FY sales drop 6%

6th April, 2020 by Nicola Carruthers

US drinks group Constellation Brands reported a 6.4% net sales decline for its wine and spirits business in fiscal 2020.

Constellation Brands expects to sell its Paul Masson brandy by the end of Q1 fiscal 2021

In the year ending 29 February 2020, Constellation Brands’ net sales were up 3% to US$8.34 billion. Net sales of wine and spirits reached US$2.72 billion during fiscal 2020, while wine and spirit sales for the three months ending 29 February 2020 grew 1.2% to US$715.4 million.

In the financial update, Constellation Brands released its forecast for fiscal 2021, which excluded the potential impacts on the business from covid-19. For wine and spirits, the group predicts a 30% to 35% decline in sales and operating income.

“My goal in doing this is to reiterate that our strategy remains unchanged and to provide the confidence we have in the growth prospects for our core business as I continue to feel very optimistic about our long-term opportunities,” Bill Newlands, president and CEO of Constellation Brands, said during a conference call for the results.

“When we look at the beverage alcohol category, we are generally a recession-resistant industry. In previous recessions and downturns the industry has generally been non-cyclical and only minimally effective.”

The company’s beer business continued to perform strongly in fiscal 2020, with an 8% net sales increase to US$5.61bn. For fiscal 2021, the group experts its beer arm to grow net sales of between 7% and 8%.

E&J Gallo deal

In December 2019, Constellation Brands’ US$1.7bn deal to sell 30 drinks brands to E&J Gallo Winery was altered after “competitive concerns” from US government body the Federal Trade Commission (FTC).

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 now expected to close by the end of Q1 fiscal 2021.

As a result of the deal, a stranded cost reduction plan of US$130m is expected to be realised over the fiscal 2021 to fiscal 2022 timeframe, Constellation noted.

The FTC is currently vetting potential buyers for Paul Masson brandy and the concentrate business in separate deals, which are anticipated to close around the same time as the Gallo agreement. Constellation also now plans to retain its Cook’s and J Roget Champagne brands.

In addition, the company sold its Black Velvet Canadian whisky brand to Heaven Hill Brands last November. The approximate fiscal 2020 shipment volume, net sales, and gross profit totalled 1.6m nine-litre case equivalents, US$50.3m, and US$23.2m, respectively.

Looking ahead, Constellation said it has a “strong innovation pipeline planned for the coming year” including upcoming line extensions for Svedka vodka in the ready-to-drink space and the launch of a new pre-mixed cocktail from its High West whiskey brand. The group will also unveil “compelling” marketing campaigns for its wine and spirit brands, including Svedka.

Canopy Growth

Constellation Brands also said that cannabis firm Canopy Growth Corporation’s equity earnings and related activities for the fourth quarter of fiscal 2020 equalled a loss of US$31.7m. The Canadian company, which has received billions of dollars in investment from Constellation Brands, began production of cannabis-based drinks in November 2019.

In March 2020, Canopy expects to record an estimated pre-tax loss of around C$700m to C$800m in the fourth quarter of fiscal 2020 due to the closure of Canadian greenhouse facilities, as well as other changes related to its organisational and strategic review.

The group said Canopy’s recent launch of its first cannabis beverage product, Tweed Houndstooth & Soda, received an “overwhelmingly positive consumer response”. Additional beverage products will be rolled out soon.

Newlands added: “We expect further revenue growth as products like vape, edibles, and beverages gain traction in the marketplace now that Rec 2.0 products have been legalised in Canada. Canopy remains best positioned to win long-term and to face challenges associated with this current economic environment as many competitors without access to capital show signs of trouble.”

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