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Constellation Brands Performance Trends 2014-2018 - results data

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In late-March, Constellation Brands reported its results for the 12 months to the end of February. Sales in fiscal-2018 came in 7% up on the corresponding period a year earlier, as a healthy final quarter gave the period a flourish. Here, just-drinks considers Constellation's performance over the last five years.

CEO Rob Sands has presided over a fascinating last five years for Constellation Brands

CEO Rob Sands has presided over a fascinating last five years for Constellation Brands

If the best route to growth is through acquisition, then Constellation Brands has been there, done that and got the T-shirt and the beer, wine and spirits brands to prove it. Even by the group's own standards, the last five years have been spectacular in terms of the number of big money deals that it has been able to pull off.

Constellation has certainly lived up to CEO Rob Sands' pledge in October 2016 that the group was in a "position to attack anything" in drinks M&A; providing it could close deals that offered 'high growth and high margin" - the "two things that are critical to us", he said. These deals have subsequently helped the business raise its bar through investing in premium products and increased distribution rights that place even greater focus on building up, promoting and pushing a series of focused power brands across its beers, wines and spirits portfolios.

At the same time, the acquisitions of the past five years have continued to re-position Constellation as more a beer and brewing business, which now account for two-thirds of its sales, and away from its origins as a traditional wine company with beer and spirits bolted on.

Serious brewer

Constellation's beer strategy has seen the group secure more control of its own routes-to-market, acquiring breweries both in the US and in key production areas such as Mexico, where, for example, it now has access to 36.5m hectolitres of premium beer per year across three breweries.

In 2015, the company struck a US$1bn deal to acquire the Ballast Point Brewing business in San Diego. This was followed in 2017 by a move for Florida's Funky Buddha Brewery, pushing Constellation ever further into the strategically-important and still-growing premium US craft beer sector.

A more-targeted wine focus

Over the last five years, Constellation's global wine strategy has become, well, a little less global and a lot more premium. Its decision in 2010 to sell 80% of its Australian, South African and UK operations to private equity group CHAMP signalled the group's objective to focus more on what it saw as growth markets primarily for premium US wines, both domestically and in key overseas markets. This has become a position it can now concentrate 100% on with the news earlier in 2018 that CHAMP had sold Accolade Wines in its entirety - including Constellation's remaining 20% stake - to fellow private equity giant The Carlyle Group.

Fast forward to late-2016, and the group underlined its new attitude by offloading its Canadian wine operations to Ontario Teachers' Pension Plan for $761m.

Constellation described its strategy thus:  "The sale of the Canadian wine business aligns with the company's focus on driving higher growth, higher-margin business activities ... and making select, value-creating acquisitions while operating at a targeted leverage ratio."

Less volume, more value

In the markets where Constellation predicts future growth for premium wines, however, it's been a very different story. The company has invested huge sums in acquiring what it considers strategically-important $15-plus wine brands; an approach that has made Constellation one of the largest wine players in the US. It is here where Sands' 'focus brands' strategy - to target its resources solely around a core set of 15 premium wine brands - has really paid off.

In 2015, Constellation splashed out $315m on California's Meiomi wine brand, which retails at $20-plus a bottle. This was quickly followed in 2016 with the $285m purchase of The Prisoner Wine Co, including the $40-a-bottle The Prisoner brand. The group also found the time - and money - to acquire five "super-premium" brands from the Charles Smith winery in Washington State for $120m.

Further afield, Constellation has built up its production and distribution wine business in New Zealand, with key brands such as Kim Crawford, Nobilo and Monkey Bay, making it the country's biggest wine exporter. 

The premium approach also applies to spirits, with high-profile acquisitions such as US craft whiskey producer High West Distillery in 2016 for $160m and fast-growing Tequila brand Casa Noble two years earlier.

High-margin deals

All these transactions have pleased investors and analysts alike, as Constellation has stuck to its high-growth, high-margin, premium brand strategy across beer, wine and spirits.

This strategy is encapsulated by its own venture capital division, Constellation Ventures, set up in 2015 to look at opportunities where the group can take minority and tactical stakes in potential high-growth businesses, like RTD cocktail producer Crafthouse Cocktails or Nelson's Green Brier Distillery. More recently, the company has bought into Kentucky-based Copper & Kings American Brandy Co and Barbados-produced The Real McCoy rum.

Going to pot

Constellation saved its most audacious financial move until the end of this five-year period, becoming the first serious drinks player to buy into cannabis. In late-2017, the group took a 9.9% stake in Canadian marijuana company Canopy Growth Corp for US$191m, showing just how much of a threat - and an opportunity - the legalised marijuana market could be for the traditional drinks industry.

The company's own figures estimate the US beer market as being worth $110bn, with wine at $60bn. By comparison, Constellation has forecast that the global cannabis market could be worth around $200bn by 2032 and is already worth $50bn in the US.

Constellation Brands' Full-Year Sales 2014-2018

20142015201620172018
Sales4867.760286548.47331.57585

Source: Company results

Constellation's top-line growth over the last five years is impressive - from $5.41bn in fiscal-2014 to $7.58bn in 2018. The $2bn-plus in extra sales demonstrates just how effective the group's acquisition strategy has been over the time period, kicked off, of course, by its takeover of the Crown Imports JV in the US in 2013.

At the same time, the company's growth trajectory has been well-managed, with around $500m extra sales added each year. Total sales in 2015 were $6.03bn, up 24% on the year prior, before increasing a further 8% to $6.55bn in 2016. Then came a 12% jump to $7.33bn in 2017 and a more conservative - by comparison - 7% rise over the last 12 months.

This steady rise demonstrates the value in pushing a premium strategy in order to deliver sustainable year-in, year-out sales growth.

Constellation Brands' Full-Year Beer Sales 2014-2018

20142015201620172018
Sales2835.63188.63622.64229.34658.5

Source: Company results

The group's beer performance over the last five years has really helped the bottom line, thanks to Constellation's string of brewery acquisitions. In fiscal-2017, the company hit its beer sales target growth of 17%, prompting CEO Sands to say: "Our beer business continues to be a powerhouse for growth". So much so, that Sands claimed Constellation was the "number one growth contributor to the US beer industry in 2016", thanks to a 13% increase in organic beer sales and 12% in volumes

Constellation followed this with another strong performance in fiscal-2018, with beer sales rising by 10%, thanks largely to a 13% lift in Q3 and +8% in Q1. The group's brewing operations hope to achieve further sales growth of up to 11% in fiscal-2019. 

Constellation Brands' Full-Year Wine Sales 2014-2018

20142015201620172018
Sales2554.22523.42591.42739.32559.5

Source: Company results

Constellation Brands' Full-Year Spirits Sales 2014-2018

20142015201620172018
Sales291.3316334.4362.9367

Source: Company results

Constellation's recent wine and spirits figures have to be considered in light of its 2016 disposal of the Canadian wine business. Whilst its reported wine and spirits sales were down in 2018 by 6%, the company's organic wine and spirits sales rose 3% on a 1% volumes dip in the year, with Q4 sales increasing 7.6% on flat volumes. In fiscal-2017 wine and spirits sales combined were up 6%, thanks in part to the acquisitions of Meiomi and The Prisoner wine brands. In 2016 their combined organic sales were up 3%.

Constellation Brands' Full-Year Sales by Category 2014-2018

Source: Company results

Constellation's Full-Year Performance by Region 2014-2018

Americas

Constellation has been able to build its US beer business over the last five years through a combination of acquisitions, such as Ballast Point and Funky Buddha, and a widening of its premium portfolio through major distribution and ownership deals. The group is now the third-largest US beer player behind Anheuser-Busch Inbev and MillerCoors. 

Crucial to its standing as a major brewer, and its performance over the last five years, was the move in 2013 to raise buy out A-B InBev from the Crown Imports JV, which handled Grupo Mondelo's portfolio in the US, for $1.85bn. This was on the back of the deal that saw A-B Inbev acquire the Grupo Mondelo brewing business and hand Constellation full distribution rights for its beers in the US as part of an anti-trust settlement. The transaction also saw Constellation acquire the Piedras Negras brewery in Mexico.

CEO Rob Sands said at the time that the deal would provide Constellation with a vital platform on which it could "provide an additional strategic lever for driving overall profitable organic growth". What it also did was to immediately add $2bn in incremental sales to the company.

Constellation has since raised its presence in Mexico considerably with the purchase in 2016 of the 4m-hectolitre capacity Obregon Brewery, followed in March 2018 with the planned investment of $900m to increase production at the site by a further 5m hectolitres over the next three to four years.

The Mexican beer category has proved to be the gift that keeps on giving for Constellation, both in terms of its presence and profile within the country, as well as in beers sales in the US, thanks in part to the country's large Hispanic population.

One of its more recent successes in Mexico is the Pacifico brand, which was subsequently rolled out to the US in cans in 2017. "Pacifico is on fire without having to do too much to drive it," is how Sands explained its performance last year.

The company has also made more recent moves into the healthier beer category with the launch in 2017 of Corona Premier, a low-calorie, low-carbohydrate brand extension.

Investment in cans and rolling out key brands, such as Corona Extra in 2015, in can formats has proved particularly successful in capturing more share of the ever-changing US beer market.

Beer continues to drive both sales and volumes for Constellation, and accounted for 77% of sales in the final quarter of fiscal-2018, up 12% to $997.2m.

The US - wine & spirits

We've already seen how active Constellation's US wine business has been on the acquisition trail over the last five years, particularly in bringing new premium brands into the business. The fact that the company now has "super- and ultra-premium" wine brands in its portfolio has helped raise the profile of its wine offering to another level. The 2016 Charles Smith deal saw brands such as Kung Fu Girl Riesling, Velvet Devil Merlot, Boom Boom! Syrah, Eve Chardonnay and Chateau Smith Cabernet all become part of Constellation's wider premium portfolio.

The company has followed a similar premium acquisition strategy in US spirits; the $160m move in 2016 for High West Distillery represented a significant move into the high-end US craft whiskey sector. Then, there have been the minority stake moves, such as craft whiskey producer Nelson's Green Brier in 2016 and 2018's The Real McCoy Caribbean rum and Copper & Kings American Brandy Co transactions.

The Copper & Kings buy made perfect sense to the Kentucky-based company's founder. "There could not be a better fit between a small craft distiller and a leader in the beverage alcohol industry like Constellation Brands," said Joe Heron. "We've done a lot of hard yards to get to where we are … we now feel the need for some assistance with the heavy lifting required to build a legacy market leader brand and investigate global expansion."

The attraction for Constellation from such a deal? "Copper & Kings is scalable not only in equity, but also the inventory of aged and ageing spirits on hand," said group COO Bill Newlands. 

International

Compared to its major multinational drinks competitors, Constellation's international business is more refined. That's not to say it should be underestimated, for the company still has ambitious plans to double its international business every three years. The group has looked to do so by building distribution in key markets, like in Brazil with Interfood Importação and Rubis in central Africa.

Other than its distilleries, breweries and wineries - of which it has six in Italy - Constellation only has a few dedicated offices around the world outside of the US; in Australia, New Zealand, China, Hong Kong and Mexico.

Europe

In 2014, Constellation decided to take back direct control of its distribution across Europe, whilst continuing to work through Accolade Wines in the UK (until the sale this year to the Carlyle Group). To do so has required a beefing up of its skills base in Europe, from a mere handful in 2012 to over 50 by 2014.

The company's European strategy over the last five years has again been a focused approach, targeting key potential growth countries such as Spain, Germany, Russia, Luxembourg, Finland and Norway.

Asia

As for all its competitors, Constellation's challenge in Asia has been trying to work with the right partners to build distribution. In 2014, the company struck an important deal with Baiju specialist Vats Liquor to distribute its Robert Mondavi brand and other premium wines into first- and second-tier cities across China through its own channels. It also has developed strategic distribution deals with local Asian specialists, like Brand Connect, which works in 13 different Asian countries.

Constellation has had some success building its spirits presence in Asia, noticeably its vodka brand, Svedka, which first launched in South Korea in 2013 followed by India and Vietnam in 2014. India has also proved to be a key growth market for Constellation's premium wine portfolio with a strategic link-up with Indian producer Sula Vineyards, to help introduce and distribute key brands such as Ruffino from Chianti, Italy.

The rate of growth in India gives Constellation continued encouragement. Prosecco has done particularly well, for example, since Constellation introduced it into the Indian market in 2015.

All this activity has helped Constellation double its Asian business between 2014 and 2016.

Outlook

In mid-2018, as part of its first-quarter results announcement, Constellation said it expects its beer sales in fiscal-2019 - to the end of May next year - to increase by between 9% and 11%. Combined sales from wine & spirits business should rise by 2%-4%.


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