Disappointing Outlook Drag Down Shares of Constellation Brands

It was only a few months or so ago that beer company Constellation Brands announced its plan to get into the marijuana industry. Indeed, in August, the beverage maker moved to invest $4 billion in Canadian cannabis producer Canopy Grove. The deal finalized in November, giving Constellation an impressive 37 percent stake in the company. 

It was quite a bold move at the time, and one that appeared to be equally bold in celebration.  At the time, the company said in a press release, “Constellation estimates the interest expense associated with this transaction to approximate $55 million before tax with an approximate $0.25 impact on fiscal 2019 comparable basis EPS results.”

Unfortunately, it turns out the company’s guidance was off the mark as the updated impact was much bigger than they originally expected. 

Constellation’s reports show third quarter comparable sales totaling $1.97 billion, which was higher than the $1.91 billion Wall Street expected.  Thus, comparable earnings reached $2.37 per share, which was more than $0.30 higher than what analysts had expected. 

With that, then, Constellation Brands had to adjust its full-year comp earnings guidance down from the range of $9.60 to $9.75 to a less impressive $9.20 to $9.30 per share.  Still, the previous forecast was a little higher than analysts had expected: $9.43 per share.

Constellation says the guidance adjustment was definitely impacted by the company’s recent investment in marijuana.   And this impact was quite a deep hit.  The company behind Corona beer saw share price plunge nearly 11.5 percent, to $152.61 early on Wednesday. Shares have already been down 22 percent in the past year.

This could be just the beginning of a big downturn for Constellation Brands, at a crucial time when outlook really needed to improve. Indeed, the Victor, New York-based beverage maker said it wrote down is Canopy Growth stake value by $164 million in Q3.  However, Constellation also appears to see both its wine and spirits arm falter in the next quarter.  The company now says they expect both sales and operating income will slide, though only by low single digits.  At the same time, Reuters recently reported that Constellation Brands was, in fact, looking to sell some of its US-based wine brands in a deal projected to be worth at least $3 billion. If they do finalize this deal, it could certainly be a confirmation of Constellation’s marijuana interests. 

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