Analysis - Constellation Brands eyes margins with brewery expansion
The brewery will double capacity in the next three years
Constellation Brands' Mexico brewery plans will help cut rising costs that pushed full-year profits into the red, an analyst has said.
Stifel analyst Mark Swartzberg said today (11 April) that increased capacity at the Piedras Negras plant will bring Constellation manufacturing, freight and glass purchasing savings. Glass and freight are about 70% of Constellation's COGS for its Mexican beer operations, Swartzberg said.
Constellation yesterday posted a single-digit full-year sales increases over last year, however cost of goods were up by $95.6m, dragging net profits to $57m below 2011's figure.
The company will acquire the Piedras Negras site, part of Constellation and Grupo Modelo's Crown Imports JV, once Anheuser-Busch InBev completes its US$20bn takeover of Modelo. In a call with analysts yesterday, Constellation head Rob Sands announced plans to double the plant's capacity over the next three years, giving the company complete control over its US beer supply.
Swartzberg also said pressures on Constellation's wine & spirits unit will continue into fiscal 2014 and profits growth is likely to lag industry averages of low to mid single-digits.
A small number of bottles of Constellation Brand's Svedka vodka is being recalled in four US states over fears of bottle defects....
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