Analysis - California drought highlights Constellation Brands' wine, beer contrast
Constellation took over Crown Imports last year
Constellation Brands has quickly got to grips with is newly-expanded beer business.
But, while its brewing arm is in full sail, Constellation's wine unit remains in the doldrums, with only flat full-year growth looming on the horizon.
Nowhere is the gap between these two categories better represented than in California, where a drought has seen rainfall running at just 10% of normal levels, threatening agriculture.
Speaking to analysts at CLSA this week, Constellation CFO Bob Ryder said the company has its eye on the situation, but may be forced to spend more this year on forward-buying than in years past.
This, CLSA says, could put further pressure on Constellation's wine unit costs two to three years down the line.
Conversely, the same dry weather that is worrying California's wine growers has proved to be a boost for brewers, especially Constellation, which credits the state with providing 20% of its beer sales, according to Ryder.
Constellation’s total beer sales for the four weeks to 26 January, a 12-month high, according to CLSA.
“This confirmed anecdotal reports we had heard from distributors in California about a strong January,” the analysts add.
Constellation's beer business has certainly got off to a good start since the Crown Imports takeover. Alongside the increased sales in California, the company's light beer labels also seem more resilient to a downturn in the category than those belonging to its rivals.
The firm is due to announce its results for fiscal full-year 2014 sometime around the start of April. It will be hoping that, by then, some of its beer unit's success will have started to rub off on its wine counterpart.
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