Beer and cannabis investment drive Constellation earnings skyward
Constellation Brands raised its profit forecast, beat estimates for second-quarter earnings and reported a $1.3 billion unrealized gain in its stake of marijuana company Canopy Growth since last November, according to the company's latest earnings report. Net sales increased 10% compared to a year ago, totaling nearly $2.3 billion. Stock in the alcohol company, whose brands include Corona and Svedka, rose 4.6% to $220.31 a share Thursday morning.
Beer sales rose 10.5% on the strength of the Modelo and Corona brand families. Constellation’s wine and spirits business, whose brands include Nobilo and Meiomi, reported sales growth of 9.3%.
“The double digit EPS growth we delivered in the second quarter is top-tier for consumer product companies," CEO Rob Sands said in the report. "Constellation remains the high-end leader and the most significant growth contributor in the U.S. beer market, and we’re seeing strong growth trends for the super-premium plus segment of our wine portfolio. Our $4 billion investment in Canopy Growth provides us with a strong foothold in the emerging global cannabis market, which could be one of the most significant growth opportunities of the next decade.”
Constellation’s raised forecast and quarterly results show that despite sales slowdowns from other brewers, beer remains popular. The company in March faced initial skepticism with its introduction of Corona Premier — a low-carb, low-calorie brand aimed at health-conscious millennials —into a crowded market of light beers. The market seemed especially challenging since last year, the category included the top three beer brands for the first time ever — Bud Light, Coors Light and Miller Lite — according to IRI data cited by the Washington Post.
But sales trends among individual brands indicated that some beer drinkers were seeking a premium light beer. While sales of Bud Light and Miller Lite have fallen for years amid a broader slump in the light-beer category, more premium brews have done better. The higher-priced Michelob Ultra that AB InBev introduced in 2002 has seen stronger growth trends — including a 21% jump in sales last year, per The Wall Street Journal. Corona Premier has nine fewer calories than Corona Light and the same price point, but the new brand appears to have hit a sweet spot for light beers that tout their sophistication, as its TV spot shows.
Analysts were encouraged by the report.
"Robust premium beer trends & market share gains in both beer/wine give us confidence that STZ’s growth engines are well intact," Wells Fargo analyst Bonnie Herzog wrote. "Further, we continue to remain bullish on STZ’s Corona line extensions (Premier & Familiar) as they are driving incremental growth."
Constellation’s results for the quarter ended August 31 included a $639 million unrealized gain in its existing investment in Canopy Growth. But the company also said the value of that investment has surged even more in the past month as investors bid up the prices of marijuana stocks. Constellation last month announced plans to invest another $3.9 billion in Canopy Growth, touting plans to develop cannabis-infused drinks for Canada and legal markets in the United States.
As Canada becomes the world's second country to legalize recreational marijuana use, cannabis is becoming the hottest trend in beverages. Constellation's interest — as well as that from other alcoholic beverage companies — has made publicly traded marijuana companies high. In August, Diageo reportedly was in talks with marijuana companies to develop new drinks.
Molson Coors spent the earlier part of the year in discussions with a number of Canadian cannabis firms about possible deals, and announced in August that it was forming a joint venture with Hydropothecary Corp. Earlier this year, the former founder of Blue Moon Brewing Company launched CERIA Beverages, a new company with a line of cannabis-infused nonalcoholic craft drinks.
Cannabis is expected to generate $75 billion in international sales by 2030, and has decreased binge drinking where it’s legal in the United States, according to a report by New York investment firm Cowen and Company LLC. A large international powerhouse like Constellation has the star power to accelerate the market, and once product development begins, the sky is the limit for its sales and profits.
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