Constellation’s beer depletions increased +8.7%, while shipments grew +17.3%, to 99.5 million case equivalents during the first quarter of its 2023 fiscal year, the company reported today. Net sales increased +21%, to more than $1.898 billion, with gross profit of more than $1 billion (+14%). The beer business’ operating income also increased +13%, to $762.8 million.
Modelo Especial depletions increased +15% in Q1, and the brand was the No.1 share gainer in the U.S. beer category in IRI dollar sales, the company reported. Modelo Chelada depletions increased more than +39%, and the brand family holds more than half of the share in the chelada segment.
Corona Extra depletions increased more than +4% and was the second largest import share gainer and third largest high-end brand in IRI-tracked channels.
Pacifico depletions increased more than +21%, which the company attributed to increased distribution due to greater availability of brown glass bottles.
Citing IRI scan data, the company reported that its beer business has “outpaced the entire beer category, as well as high-end beer.”
Constellation reported that its operating margin decreased 260 basis points, to 40.2%, as “benefits from favorable pricing, foreign currency, and marketing and SG&A as a percent of net sales were more than offset by increased COGS driven by expected higher raw material, transportation, brewery, and depreciation costs.”
Looking ahead to the rest of FY2023, Constellation said it anticipates beer business net sales and operating income growth of +7% to +9% and +2 to +4%, respectively.
Portfolio-Wide Net Sales Top $2.6 Billion
Net sales across Constellation’s beer, wine and spirits portfolio topped $2.363 billion during the quarter, a +17% increase compared to 2022.
Constellation generated earnings per share of $2.06 on a reported basis and $2.66 on a comparable basis, including Canopy Growth equity losses of $0.24.
Constellation’s wine and spirits depletions (+1.2%) and shipments (+1.5%) both increased during the quarter. Net sales for the wine and spirits business increased +2%, to $465 million. Nevertheless, the company anticipates net sales of its wine and spirits business to decline -1% to -3% in FY2023, with operating income growth of +4% to +6%.
Constellation Board Approves Plan to Eliminate Sands Family Voting Control; Rob and Richard Sands to Retire
Constellation Brands’ board of directors has agreed with a proposal by the Sands family, the largest shareholder of Constellation Brands stock (STZ), to eliminate the company’s Class B stock and convert those shares to Class A common stock, plus a cash consideration of $64.64 per share of Class B common stock.
The move, if accepted by shareholders, would reduce the Sands family’s voting control from 59.5% to just under 20%. The Sands family are expected to remain the largest shareholder of Constellation stock following the changes.
“The proposed share reclassification will strengthen the company’s corporate governance profile by aligning voting rights with the economic interests of all shareholders,” Constellation president and CEO Bill Newlands said in a release. “In addition, the company’s simplified capital structure will provide a solid foundation as the company continues to pursue its strategic growth initiatives and capital allocation priorities to build shareholder value.”
Shareholders will still need to sign off on the proposal during a special meeting. Should it go forward, Constellation said the transition offers several benefits:
- “The elimination of the higher vote Class B common stock, including the associated voting control of the Sands family, and a reduction in the concentration of voting power;
- “Simplification of the company’s equity capital structure to better align the voting rights and interests of all shareholders;
- “Broader appeal of its shares to a larger base of investors who prefer single voting class common stock structures;
- “Operating cost savings associated with executive salary and certain benefits ($15-20 million of cost in fiscal 2022), as well as administrative savings from maintaining the Class B common stock;
- “Rotation of the lead independent director position on the board at the next available normal cycle opportunity
- “Shift to majority voting in uncontested elections from current plurality standard for its board of directors and adoption of a board anti-pledging policy.”
Robert Sands, executive chairman of the board, and his brother Richard Sands, executive vice chairman of the board, plan to retire from Constellation Brands once the reclassification of stock is approved. Robert Sands will become non-executive chairman of the board, while Richard Sands will retain a board seat.
$5 Billion Earmarked for Cap-Ex Projects in Mexico
Constellation expects to spend as much as $5.5 billion between fiscal 2023 and fiscal 2026 on capital projects in Mexico to provide “long-term flexibility needed to support expected future growth of its high-end Mexican beer portfolio,” the company reported. Those projects include a new brewery in Southeast Mexico in the state of Veracruz, as well as additional expansion projects at its existing Nava and Obregon breweries, which will give the company up to 30 million hectoliters (more than 25.5 million beer barrels) of modular capacity.
$22 Million Decrease in Fair Value of Canopy Cannabis Investment Recorded
Constellation Brands reported a $22 million decline in the fair value of its investment in cannabis firm Canopy Growth during Q1 2023. The company said it has recognized $556 million in unrealized net losses since making its original Canopy investment in November 2017.