Constellation reports 4% sales drop for wine and spirits – The Spirits Business

Svedka Vodka owner Constellation Brands’ wine and spirits sales declined by 4% in the three months ending 31 May 2020, with the group unable to provide guidance for fiscal 2021 due to the pandemic.

Svedka’s latest innovation: Pure Infusions

For the first quarter of the group’s fiscal 2021, Constellation Brands’ organic net sales for wine and spirits fell 4% from US$601.1 million during the same quarter in 2019 to US$579.3m this year.

Constellation Brands’ total net sales organically dropped 6% to US$1.96 billion. Operating income fell 2% to US$610 million.

Constellation Brands CEO and president, Bill Newlands, said: “We overcame a number of headwinds to deliver solid first quarter results marked by margin improvement and impressive depletion growth for our beer business and our wine and spirits power brand portfolio.”

The firm’s wine and spirits unit recorded net sales at US$579.3m. Constellation said its wine and spirits premiumisation strategy gained momentum with strong growth from its ‘power brands’, including Svedka Vodka. The power brands segment grew 5%. Svedka recently released a zero-sugar flavoured range, called Pure Infusions.

Constellation said it had US$687m of operating cash flow and US$542m of free cash flow.

“Our strong cash flow results provide financial flexibility as we continue to focus on reducing our debt levels,” said Garth Hankinson, chief financial officer. “During the quarter we refinance debt at favourable rates to enhance liquidly during this time of uncertainty.”

Divestment activity 

Last month, Constellation found a buyer for Paul Masson Grande Amber Brandy. The group signed an agreement with Buffalo Trace owner Sazerac for approximately US$255m, which is expected to close in the second quarter of fiscal 2021.

US firm Constellation Brands originally intended to sell Paul Masson as part of a US$1.7bn agreement to offload 30 drinks brands to E&J Gallo Winery. However, the deal was altered in December 2019 following “competitive concerns” from a government agency, leading to the exclusion of Paul Masson, Cook’s California Champagne and J Roget American Champagne from the sale. Constellation decided to retain the Champagne brands.

The deal with E&J Gallo is expected to close by the end of the second quarter of fiscal 2021.

Following the wine and spirits agreement, the company’s cost-cutting plan to save US$130m is expected to be realised between fiscal 2021 to fiscal 2022.

Constellation also sold Black Velvet Canadian whisky in November last year. The firm said the estimated fiscal 2020 shipment volume, net sales, and gross profit without marketing sat at 1.6m nine-litre cases, US$50.3m, and US$23.2m, respectively.

In addition, Constellation Brands said the group’s share in Cannabis firm Canopy Growth Corporation for the first quarter reported a loss of US$377.6m.

Constellation said it had recognised a US$112m unrealised net gain since the initial investment in Canopy in November 2017 and a US$197m drop in the fair value of Canopy investments for Q1 2021.

Earlier this week, Constellation Brands revealed it will invest US$100m in black and minority-owned alcohol businesses over the next 10 years as part of a new programme.

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