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Constellation Brands Posts 10% Sales Growth In Third Quarter, Operating Income Rises 19%

January 5, 2017

Constellation Brands maintained its streak of double-digit growth in its fiscal third quarter ended November 30, 2016, although momentum slowed slightly as the company’s spirits and wine division couldn’t keep pace with its formidable first-half results. 

Constellation’s overall net sales advanced by 10% to $1.8 billion in the third quarter, with seven percentage points coming from organic growth and the remainder derived from acquisition benefits. The company had enjoyed sales gains of 15% in its fiscal first quarter and 17% in the second quarter. Third quarter operating income was up by double-digits, with a 19% increase to $534 million.

Beer remains Constellation’s primary growth engine, as the beer unit’s third-quarter net sales jumped by 16%. Organic growth contributed 12 percentage points of growth, as the Modelo portfolio continues to thrive in the U.S. market. The remainder came from the acquisition benefit of Ballast Point—the California craft brewer that Constellation acquired for $1 billion roughly a year ago.

Constellation’s wine and spirits sales grew by 5% in the third quarter—a marked slowdown from the second quarter, when the division’s sales rose by 12%. Much of the third quarter growth reflected the acquisition benefit from The Prisoner and favorable price mix. Those were partially offset by lower volume, which the company says was “due to timing, as U.S. depletions volume outpaced shipment volume during the quarter.” Still, Constellation says its wine business gained IRI volume and dollar share in the third quarter amid strong depletion growth for its focus brands, and was IRI’s number-one share gainer in the U.S. wine category.

During the third quarter, Constellation—which has been one of the most acquisitive players in the drinks business over the past few years—made minority investments in Catoctin Creek Distilling Company, a producer of premium rye whiskey and gin, and the Bardstown Bourbon Company, which Constellation calls “the largest new whiskey distillery in the U.S.” The company also revealed that it has completed its recent acquisitions of High West Distillery, for $137 million, and Charles Smith Wines, for $121 million.

For the full fiscal 2017 ending February 28, Constellation projects that its beer business will achieve net sales growth of 16%-17% and operating income growth in the high teens. For the wine and spirits business, Constellation expects net sales growth in the mid single-digit range and operating income growth in the mid to high single-digit range. —Peter Zwiebach

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