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Constellation Brands cuts forecast again amid weak demand
Only three months after lowering its sales and profits forecast for the year Constellation Brands has again cut them in the face of continuing retailer destocking and consumer resistance to price rises.
Its third-quarter results were below analysts’ predictions and its shares crashed by 14% on Wall Street when the announcement was made.
Chief executive Bill Newlands said that Americans earning US$50,000 or less continue to trade down to smaller pack sizes of beer and cheaper alternatives.
“Given the near-term uncertainty on when consumers will revert to more normalised spending, we have prudently lowered our growth outlook,” he said.
Third-quarter results fall short
With only three months of its financial year remaining, Constellation now predicts its annual net sales will grow between 2% and 5%, compared with its previous forecast of growth between 4% and 6%.
Constellation also cut its estimated adjusted profit per share for the year to between US$13.40 and US$13.80 from the US$13.60 to US$13.80 expected earlier.
Third-quarter net sales of US$2.46 billion missed analysts’ estimates of US$2.53 billion,
Some 85% of the group’s business now depends on its beer division, especially its premium Mexican-brewed Modelo and Corona brands.
While they continue to outperform their rivals and continue to gain market share, Constellation has lowered its predictions of the division’s sales after reporting a 3.2% rise in third-quarter shipments to distributors compared with 8.2% growth in the same quarter last year.
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Beer sales drive
Beer sales are now expected to grow between 4% and 7% compared with last autumn’s estimate of 6% to 8% growth.
The wines and spirits division again performed poorly, particularly in the lower-priced categories.
Wine and spirits shipments fell by 16% year over year, generating declines of 14% and 25% in net sales and operating income.
Newland pointed out however that in the less sensitive price brands, the Robert Mondavi and Meleoni ranges had improved performance and increased market share with the fine wine portfolio achieving depletion growth of 6% in the quarter.
It is continuing to drive its wines and spirits into higher price brackets and to that end, the sale of Svedka vodka to Sazerac has been completed.
Looming tariffs
Newlands said that he expected the present reluctance by consumers to spend to diminish. He pointed out that US unemployment was falling as was inflation.
On the downside, however, Donald Trump returns to the White House in 10 days and investors are waiting to see whether he implements his threatened tariff increases, especially on imports from Mexico.
Some analysts calculate that if he does so, Constellation could be forced to raise its prices by about 12% to protect its margins on beer and tequila.
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