Constellation Brands' Shares Slide After Cannabis Investment Backfire

Published on: 09 Jan, 2019

Constellation Brands, Inc. (NYSE: STZ) reported its third quarter financial results and topped analysts’ estimates. Despite the beat, Constellation Brands’ shares plummeted on Wednesday due to weaker sales in its wine segment and its cannabis investment backfiring.

For the third quarter, Constellation Brands reported earnings per share of USD 2.37 on revenue of USD 1.97 Billion. Analysts forecasted earnings per share of USD 2.06 on revenue of USD 1.91 Billion.

Constellation’s wine and spirit segment shipment volume remained unchanged, while revenue only increased marginally by 0.4% year over year. Wine and spirit revenue came in at USD 762.8 million for the quarter.

Sales for its beer business, which includes popular brands such as Corona and Model, grew by 16% to USD 1.21 Billion. Constellation now expects fiscal 2019 sales to grow to the high end of 9% to 11% range.

Due to global alcohol consumption declining in recent years, beverage producers have invested into other sectors. Constellation became one of the first major companies to step into the cannabis industry by investing USD 4 Billion into Canopy Growth (NYSE: CGC) back in November.

However, Constellation’s investment has yet to pay off. Due to the investment, Constellation adjusted its full-year earnings guidance. The Company lowered its guidance from USD 9.60 to USD 9.75 per share down to USD 9.20 to USD 9.30 per share. Bloomberg analysts expected earnings per share of USD 9.43.

Constellation said it lowered the value of the Canopy stake by USD 164 Million recognized in the third quarter. The Company also said that the investment is expected to slash its full-year earnings per share by USD 25 cents.

Despite the unexpected impact of the Constellation’s investment, analysts still see an upside for its cannabis investment. However, the major problem for Constellation is to address its wine and spirit sales.

"While we remain bullish on [Constellation's] positioning in beer and its [long-term] opportunity especially with its investment in Canopy Growth (NYSE:CGC), we believe it is urgent that STZ address its low end wine business," Wells Fargo analyst Bonnie Herzog said in a note, according to CNBC.

Ratings

Ratings
  • 3890Views
  • 0Comments

Recommend to Friends

  • facebook
  • Twitter
  • google plus
  • pinterest
  • Digg
  • stumbleupon
  • Reddit
  • linkedin

Bryan Shin

Email: Bryan@financialinsiders.com

@Newsletter

Sign Up for Weekly Updates

Opt-into our eNewsletter NOW! For the Latest Trending Financial News Topics in Cannabis, Tech, Biotechs, Precious Metals, Energy, Renewable Energy and much more!

Related Posts

27 Jun, 2017 3406
13 Jul, 2017 3048
28 Jul, 2017 3791
11 Aug, 2017 3272

Comments

There is no comment on this article