Constellation Brands’ beer business recorded an +11% increase in net sales growth, to $6.75 billion, for the company’s 2022 full fiscal year.
FY 2022 marked the company’s 12th consecutive year of volume growth, with +8.8% shipments (sales to wholesalers) growth and +8.9% depletions (sales to retailers) growth – amounting to an additional 30 million case equivalents, CEO Bill Newlands said during a conference call with investors. Those metrics accelerated in the company’s fourth quarter of the year, with +9.9% shipments growth and +0.8% depletions growth. Net sales increased +14%, to $1.56 billion, in Q4.
The company attributed the growth to “continued strong demand in off-premise channels, as well as a return to growth in on-premise channels,” and noted that depletions growth was about +8% when adjusted to account for two additional selling days in the year.
Constellation’s beer portfolio – popular Mexican imports Modelo, Corona and Pacifico – “significantly outpaced the total beer category, the high-end segment, and was the No. 1 dollar share gainer, adding 1.2 market share points,” the company wrote.
Modelo Especial, the second best selling beer in off-premise retailers tracked by market research firm IRI, recorded a +15% increase in depletions for FY 2022 and accelerated to +17% depletions growth in Q4. Modelo’s Chelada line extension posted +30% depletions growth for FY 2022.
Corona Extra “sustained its reinvigorated growth trajectory” and increased depletions by +9% for both FY 2022 and Q4.
During the 2022 fiscal year, which ended February 28, the beer business was the brightest star in Constellation’s sky. Overall, the company’s total business – which includes popular wine brands Meiomi, Kim Crawford and The Prisoner, and spirits brands Svedka, High West and Casa Noble – recorded +2% net sales growth, to $8.8 billion, for FY 2022 and +8% for Q4.
Beer Portfolio Future Growth
All three of Constellation’s import beer brands have multiple runways for growth in the company’s 2023 fiscal year, Newlands said.
While Modelo out-sells Corona, Modelo has about 80% of Corona’s household penetration rate, and it under-indexes with non-Latino consumers.
“We believe increasing total market penetration for Modelo, especially out to Corona Extra levels, will enable access to more than 2 million incremental consumers,” Newlands said.
Constellation has launched a bevy of new Modelo-branded products in test markets, including Modelo Oro, a lower-carb, lower-calorie light beer; Modelo Ranch Water, a sugar-brew version of the popular Texas-inspired ready-to-drink cocktail; Modelo Cantarito-Style Cerveza, a beer inspired by the citrus-forward Mexican cocktail; and package and flavor innovations in its Modelo Chelada line.
Additionally, Constellation will focus on securing more draft placements for Modelo Especial.
“Modelo Especial is the No. 5 draft brand in the entire category, yet it only has 11% national distribution,” Newlands said.
To boost Pacifico sales, Constellation is supporting the brand’s expanding distribution footprint by targeting legal-drinking-age Generation Z consumers with a digital campaign.
“We’re forecasting 10%-15% total annual volume growth in the medium term from distribution alone,” Newlands said. “We’re prioritizing growth in key DMAs [designated market areas] for Pacifico to expand off-premise points of distribution in key cities particularly in the West and Midwest regions of the country.”
For Corona Extra, the brand in Constellation’s portfolio with the oldest and widest exposure to the general beer-buying public, Newlands said “minus growth” is projected for the 2023 fiscal year. However, low-carb line extension Corona Premier has plenty of opportunities for distribution, “as there are still significant effective distribution gaps versus Corona Extra.”
“It still trails behind competing brands indicating significant opportunity to increase velocity,” Newlands said of Corona Premier.
Price Increased +3.5%
Constellation increased beer prices about +3.5%, higher than the company’s typical +1% to +2% range, driven by “several headwinds,” chief financial officer Garth Hankinson said. Those included a $80 million obsolescence charge in excess Corona Hard Seltzer inventory, added headcount and labor inflation at the company’s facilities in Mexico, and “high single-digit increases” in the prices of pallets, cartons, steel, corn and aluminum.
Asked why the company wasn’t “more aggressive” in increasing prices, Newlands stressed that price increases are considered on a “SKU by SKU basis, market by market.”
“We are probably a bit more judicious on price than perhaps we could be,” he said. “The reality is we need to be sensitive to our consumers. It’s a challenging time for consumers across many, many industries, and it’s our view that this is not the time to try to put extra burden on one of the critical things that many people have in their basket, which happens to be our beers.”
Those comments were in stark contrast from remarks made by Hankinson during January’s investor call in which he said the company wanted to “make sure that we’re not leaving any pricing on the table. We want to take as much as we can.” Those comments drew the ire of House Democrats such as Rep. Maxine Waters, according to The Hill.
Accelerated Stock Buyback
Constellation announced today an accelerated share repurchase (ASR) program to buy back $500 million in shares of Class A common stock.
The ASR followed news earlier this week that chairman Rob Sands proposed his family convert the Class B shares they own, which have voting control, to Class A shares. That move, if accepted, would reduce the Sands family’s voting control from 59.5% to just under 20%.
Goldman Sachs equity analyst Bonnie Herzog wrote that she was “encouraged” by the ASR in a report following the conference call, because it shows management “is now committed to stepping up repurchases,” which is “very positive as it suggests their priorities have no firmed shifted to returning cash to shareholders.”
Constellation Acquires Austin Cocktails
Constellation expanded its portfolio of spirits-based RTD canned cocktails with the acquisition of Texas-headquartered Austin Cocktails, the company announced today. Constellation first invested in Austin Cocktails in 2018 as part of its Focus on Female Founders program, an initiative under its investment arm, Constellation Ventures.
Sisters Jill Burns and Kelly Gasink launched the brand in 2014, long before the RTD segment exploded last year. Austin Cocktails’ portfolio features “cocktails with natural ingredients and premium spirits that have full-strength alcohol content,” according to a press release. At 12%-15% ABV, the brand’s offerings are far stronger than the segment’s leaders, which tend to check in around 5% ABV.
Later this year, Constellation will launch Fresca Mixed, a spirits-based RTD line, through a licensing agreement with Coca-Cola, which owns the non-alcoholic fruited sparkling water brand.