Constellation Brands CEO Bill Newlands has insisted the Svedka vodka maker is expecting “sequential improvement” from its wine-and-spirits business after another lacklustre quarter for the unit.
In the three months to the end of August, the US group's second fiscal quarter, shipments from the wine-and-spirits division fell 9.8% to 5.5 million nine-litre cases. Depletions dropped 17.6%. Net sales sank 12% to $388.7m. The division also reported operating income of $70.5m, down 13% year-on-year.
Speaking to analysts yesterday (3 October), following the publication of Constellation’s second-quarter results, the chief executive said: “Frankly, our focus right now is on improving the operational performance of that business.
“And all the time, energy and efforts are being put against seeing that operational improvement play out in the back half of the year, including engaging more directly and more often with our distributor partners as part of that.”
Newlands noted that there had been some “green shoots” in the second quarter across the “higher-end wine brands”, including Kim Crawford, Meiomi and The Prisoner, “as tactical pricing and marketing support actions we are taking in select markets began to drive better consumer takeaway trends”.
He added: “We plan to continue these actions through the remainder of the year to drive further improvements in this select group of our most scaled higher-end offerings, which ultimately underpins the sequential improvement we expect in our wine-and-spirits business over the second half of fiscal 2025.”
Constellation Brands updated its full-year outlook last month after revealing it was expecting an up to $2.5bn impairment on its wine-and-spirits unit. The US company revealed yesterday that it suffered a non-cash goodwill impairment loss of $2.25bn in the quarter.
The Casa Noble Tequila maker also consequently cut its forecast last month for its annual net sales growth from between 6% and 7% to 4% and 6%.
However, Constellation’s beer division, which includes brands like Corona and Modelo, told a different story. During the second quarter, shipments grew 4.6% to 128.6 million 24-pack, 12-ounce cases while depletions rose 2.4%.
The beer business saw net sales jump 6% year-on-year to $2.53bn and operating income reached $1.08bn, up 13% year-on-year.
Newlands nevertheless claimed there were some factors that dampened the Constellation’s beer performance.
“One is there was somewhat higher unemployment rate, particularly in the Hispanic market. And that affects most of our top five states, which represent roughly 50% of our volume.
“I think, secondly, and if you look historically, this often happens, whenever there is a scenario where you have a federal election that is close, you often have people pull back. You see it across the whole consumer sector, and that is consistent as well.”
He added Constellation is “as optimistic as we have been about our expectations for the back half of the year”.
As a result, the beer business continues to expect net sales growth of 6% to 8% and operating income growth outlook of 11% to 12% for fiscal 2025.
Constellation’s total net sales grew 3% in the quarter, reaching $2.92bn. On a comparable basis, operating income jumped 13% to $1.09bn but on a reported basis, it reached $1.23bn.
Comparable adjusted EBIT rose 12% to $1.09bn but dropped on a reported basis to $1.23bn.
Lauren Lieberman, an analyst at Barclays, said in a note to clients: “We’ve discussed the evolution of the Constellation investment case from being solely top-line driven to one that is more balanced, with attention paid across top line, profitability and cash flow and we would argue that this quarter’s results very much fit that bill.”
