Constellation Brands has cut its forecasts for the annual sales and profits it expects to generate from its wine-and-spirits business.
The Svedka brand owner now expects the unit’s organic net sales and operating profit to fall year on year amid slowing market demand.
Constellation sees the division’s net sales dropping 7-9% in the year to the end of February, compared to its previous forecast of growth of a 0.5% decline at worst and a 0.5% increase at best.
The US group said today (5 January) the unit’s operating income is forecast to fall 6-8%, versus an earlier forecast of growth of 2-4%. The new estimate excludes “$38.5m of net sales and $19.5m of gross profit less marketing that are no longer part of [the] results”, Constellation said.
Nevertheless, the Modelo brewer now sees the operating income from its beer business growing faster than it previously thought. The company also maintained its forecast for annual group underlying earnings per share to be $12-12.20.
Shares in Constellation were up 3.11% at $249.86 at 10:06 GMT today.
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The revised forecasts came alongside the publication of the company’s third-quarter financial results for the three months to 30 November.
Net sales rose 1% to $2.47bn, amid a 4% rise from Constellation’s beer business but a 7% slide in sales from the group’s wine-and-spirits arm.
Operating income was 7% higher at $797m. The profit performance of the beer and wine-and-spirits divisions followed their top-line results, with beer seeing operating income rise and wine-and-spirits reporting a decline.
Group net income grew 9% year on year to $509m.
Constellation president and CEO Bill Newlands described the results from its beer business as “excellent”, pointing to “double-digit” volume growth from Modelo Especial.
He added: “This outstanding performance has reinforced our conviction in our fiscal 2024 enterprise outlook, despite an adjustment to our wine and spirits business guidance due to near-term headwinds in the wine market.”
On an organic basis, Constellation’s wine-and-spirits shipments fell 10.3% during the quarter. Depletions dropped 10%. The company highlighted a 6% rise in the depletions it saw from wine brand The Prisoner and an 80% jump from Mi Campo Tequila.
Ahead of the results, the company announced it had “mutually agreed” with Robert Hanson, the president of the wine-and-spirits division, that he would step down at the end of the financial year on 29 February.
AllianceBernstein analyst Nadine Sarwat said the “disappointing” figures from Constellation’s wine-and-spirits portfolio “takes the shine off a strong beer business”.
She added: “For any investor who was worried about either, one, the extent of the growth overstatement in scanner data, or, two, a weakening consumer, today’s beer results should offer reassurance about the strength of the business.
“But disappointing wine and spirits is a drag. We suspect investors will be frustrated with the continuing disappointment of the wine-and-spirits division, with many continuing to question management’s conviction in both its turnaround and its strategic rationale in the overall business.”