Constellation Brands Reports 9.1 Percent Beer Depletions Growth in Third Quarter

Constellation Brands reported its third-quarter fiscal 2018 earnings Friday, which were highlighted by 9.1 percent growth in beer depletions (sales-to-retailers) and a 5.9 percent increase in shipments over the comparable three-month period.

Net sales of Constellation Brands’ beer portfolio — which includes Mexican import labels Corona, Modelo and Pacifico, as well craft offerings from Ballast Point and Funky Buddha — increased 7.8 percent for the quarter, ending November 30.

Those numbers largely follow Constellation’s year-to-date trends. Through the first nine months of fiscal year 2018, Constellation Brands’ net beer sales were up 10 percent while beer shipments increased 8.4 percent. Depletions were also up 9.5 percent through the first nine months.

The company said it’s targeting high single-digit volume growth and net sales growth of between 9 and 11 percent for fiscal 2018.

During a call with investors, Constellation Brands president and CEO Rob Sands touted “another great quarter” for the company’s beer business. He added that Constellation’s beer labels generated “80 percent of total U.S. beer category growth” as Modelo Especial, Corona Extra, Modelo Chelada Tamarindo Picante and Pacifico claimed four of the top 10 share gainer positions.

In a press release, the company said Constellation’s beer business “won the Labor Day and Thanksgiving holidays with leading share gains in the U.S. beer market.”

“Corona Extra and Modelo Especial continue to drive the growth of the portfolio with ongoing distribution and velocity gains,” the company reported.

During the call, Sands told analysts that Modelo brand family depletions were up nearly 17 percent. He also hailed Pacifico as the “fastest growing beer brand,” citing 52-week IRI dollar sales growth of nearly 24 percent.

Constellation Brands has also made strides in securing additional shelf space in off-premise retailers. Executive vice president and chief financial officer David Klein said the company has increased its points of distribution by double digits year-to-date.

Looking ahead, Sands said the company is in the process of finalizing its launch strategies for Corona line extensions Premier and Familiar.

For Premier, the company’s low-calorie challenger to Michelob Ultra, Constellation will make its “largest ever launch investment of more than $35 million” with advertising slated to begin in April, Sands said. Meanwhile, Corona Familiar will also roll out in April in major hispanic markets, which he called “a key demographic” for the brand.

Sands also discussed Constellation Brands’ $191 million investment into Canadian cannabis company, Canopy Growth Corporation. He told analysts that the company’s 9.9 percent stake in Canopy gives the Constellation Brands a “first-mover advantage” in an emerging consumer category.

Sands noted that the company is developing non-alcoholic beverages infused with cannabis, but those products are still being tested. However, he said the goal is to have cannabis beverages ready to go to market in Canada when those products are legalized. He added that the company has no plans to sell those beverages in the U.S., or other countries, until they are “legal at all levels of government.”

To support its efforts with Canopy, Sands said the company has put a marketing team in place to do “a lot of the standard CPG stuff that we have a fairly deep knowledge and expertise in.”

As for legal sales of cannabis in California, Constellation Brands’ biggest market, Sands said he doesn’t expect it to have an impact on the company’s business and called it a “non event” due to medical marijuana having already been available in the state. He added that there’s not enough information to know for certain whether consumers will substitute legal cannabis for alcohol occasions, or a complement their beverage consumption with marijuana.

“What we do know is that it’s going to be a big market, however, worldwide,” he said.

Other notes from the call:

  • Constellation Brands announced a new, multi-year $3 billion share repurchase program. Klein said the buyback gives the company “significant capital allocation flexibility” to invest in the business while also returning cash to shareholders.
  • The company has reached a 10-year extension of its partnership with Owens-Illinois to supply glass to the company’s Nava plant. The two companies plan to add a fifth furnace to the plant, which is expected to be online by the end of 2019, Sands said.
  • Sands expressed support for the recently passed tax code rewrite, which included excise tax relief for alcohol producers and importers, saying “it will be very positive for us going forward.”
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