Constellation Brands’ Shipments and Depletions Grow in Q1

Constellation Brands’ beer portfolio continues to drive the company’s growth.

The multifaceted alcohol company today reported its first-quarter fiscal 2020 earnings, which were highlighted by a 5.4 percent increase in shipments (sales-to-wholesalers) and a 6.6 percent increase in depletions (sales-to-retailers) for the three-month period ending May 31.

Net sales of Constellation Brands’ beer offerings — which include Mexican import brands Corona, Modelo and Pacifico, as well as craft offerings from Ballast Point, Funky Buddha and Four Corners — increased 7.4 percent, to nearly $1.5 billion.

In a press release, Constellation Brands president and CEO Bill Newlands called Constellation’s beer business “a cornerstone of growth in the U.S. beer industry.”

During a call with analysts and investors, Newlands said Constellation’s beer brands accounted for one-third of the growth in the U.S. high end beer market. He added that he is “pleased with the strong start to the year.”

Constellation credited its increase in depletions during Q1 to more than 17 percent depletion growth of Modelo Especial, which was the top share gainer in the U.S. beer market during the period. Newlands added that the brand is accelerating on-premise, and the company is also expecting to grow sales of 32. oz. single-serve bottles off-premise.

Asked about Corona brand family trends, Newlands said overall Corona trends are “flattish.” However, he said the company is comfortable with its performance. Corona line extension Premier posted double-digit depletion growth during the quarter and was among the top 10 U.S. beer market share gainers during the period. The company also rolled out Corona Refresca, a new FMB available in two tropical flavors, nationally in early May. Newlands said Refresca has exceeded early expectations.

The Pacifico brand also posted double-digit depletion growth during the quarter, Newlands said.

Constellation is “confident” in its target of net sales and operating income growth between 7 and 9 percent for fiscal 2020, Newlands added.

As for Constellation’s $4 billion investment in Canadian cannabis company Canopy Growth, the company said it recognized an $828 million decrease in the fair value of the investment during the quarter.

Newlands said the company remains “happy” with its investment in Canopy and the long-term prospects of the business, but the company was “not pleased” with Canopy’s recent financial results. Nevertheless, he said the company would continue to support Canopy long-term in its strategy to win markets and achieve profitability. He added that the company plans to launch beverages and edibles in Q4.

Newlands added that Canopy, through its recent acquisition of New York-based Acreage Holdings, would give the company a “leading position” in the U.S. market upon federal legalization of cannabis.

Constellation Brands executive vice president and CFO David Klein added that the company expects the cannabis market to be “volatile” but its been “mostly on track” with Constellation’s expectations. He said the company remains “bullish” on the investment.

Finally, the company said the sale of 30 wine and spirits brands — each with suggested retail prices of $11 or less — to E. & J. Gallo Winery for $1.7 billion is now expected to close in the second half of 2019. Newlands told investors and analysts that the company is “confident” in its ability to close the transaction and will continue to support its entire portfolio until the transaction is completed.

At press time, Constellation stock was up more than 3 percent, to more than $194.

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