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Luxor Capital Reduces Position in Constellation Brands

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Luxor Capital and Constellation Brands

In the fourth quarter, Luxor Capital reduced its exposure to Constellation Brands (STZ) by selling approximately 461,000 shares in the company. The fund currently holds 2.6 million shares in the company and the position accounts for 5.07% of its US long portfolio value.

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Overview of Constellation Brands

Constellation Brands is a leading international beverage alcohol company with a broad portfolio of premium imported beer, wine, and spirits brands, in addition to other select alcohol products. It is the third largest beer producer and marketer in the US market and the world’s leading premium wine company.

Constellation’s wine brands include Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino, and Jackson-Triggs. The company’s premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky. Its beer brands include Corona Extra, Corona Light, Modelo Especial, Negra Modelo, and Pacifico. The company reports its operating results in three segments: beer, wine and spirits, and corporate operations and other.

Modelo Especial 

Modelo Especial is part of Constellation’s beer portfolio. It grew ~106.9% from 2008 to 2013. The brand shipped more than 3,745,000 barrels in 2014. According to Constellation’s management, Modelo Especial was first brewed in Mexico in 1925 and first sold in the US after 1992.

In terms of the growth rate, Modelo Especial is behind Dos Equis. Dos Equis is part of Heineken (HEIA.AS). But, Modelo Especial is ahead of Anheuser-Busch’s (BUD) Stella Artois.

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Constellation invests $1 billion in Mexico

Constellation is planning to invest $1 billion in order to expand the production at its Mexico facility. It plans to expand production from 10 million to 25 million hectoliters. This will help increase its share in the US market from 7% to ~14%.

According to Constellation’s management, “imported beer and craft beer are growing a lot in the US. We want to keep pushing premium Mexican brands in the US market. We’re concentrating on beer, that’s where we have aggressive plans for growth.”

Constellation Brands’ JV and acquisition

In December 2014, Constellation finalized its JV (joint venture) with Owens-Illinois (OI) in order to acquire Anheuser-Busch InBev’s glass production plant in Nava, Mexico. Constellation also purchased a high density warehouse as well as land and rail infrastructure in a deal worth ~$300 million. The acquisition will complement Constellation’s future growth opportunities in Mexico.

The company hopes that the move will help it gain “greater control over [its] glass needs in terms of quality, flexibility, and cost-effectiveness.”

Key ETFs

Constellation Brands (STZ) is a component of the First Trust Consumer Staples AlphaDEX Fund (FXG) making up 5.35% of the ETF. The company also accounts for 1.31% of the iShares Morningstar Mid Growth ETF (JKH) and 1.63% of the Consumer Staples Select Sector SPDR Fund (XLP), respectively.

In the next part we’ll discuss Luxor Capital’s position change in Voya Financial (VOYA).

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