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STZ Can’t Go Wrong with Corona in Its Beer Segment

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Strong brew

Constellation Brands (STZ) continues to benefit from the growing demand for its Mexican beer brands, including Corona Extra, Corona Light, and Modelo Especial. The net sales of Constellation Brands’s Beer segment rose 19.9% to $1.2 billion in fiscal 2Q17, which ended on August 31, 2016.

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What drove beer sales in fiscal 2Q17?

In fiscal 2Q17, Constellation Brands’s (STZ) Beer segment sales were driven by higher volumes and increased pricing in select markets within the company’s Mexican beer portfolio. The Beer segment’s total shipment volumes increased 15.5% in fiscal 2Q17. The segment’s depletion volume saw robust growth of 13.8%. Depletions indicate the shipments directly sold by distributors to retailers during a certain period.

Constellation Brands’s Beer segment sales also benefited from $46 million of sales from the acquisition of Ballast Point. Constellation Brands acquired Ballast Point in December 2015 to capitalize on growth opportunities in the growing craft beer space.

In the company’s fiscal 2Q17 conference call, Constellation Brands’s CEO, Robert Sands, stated that Ballast Point generated depletion growth in the high double digits during the quarter. The company is working to further extend the distribution of the Ballast Point brand in the US. To support the growth of the brand, the company has begun construction of a Ballast Point East Coast brewery in Virginia.

The Beer segment’s operating income rose 26.6% to ~$451 million, driven by higher volumes, favorable pricing, and the favorable impact of the Ballast Point acquisition. However, higher marketing investments negatively impacted the segment’s operating income.

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Constellation Brands is the third-largest beer producer in the US market. Anheuser-Busch InBev (BUD) is the market leader, followed by MillerCoors, which is a joint venture between Molson Coors (TAP) and SABMiller (SBMRY). With the completion of the pending acquisition of SABMiller by Anheuser-Busch InBev later this year, SABMiller’s interest in MillerCoors will be divested to Molson Coors.

Outlook

Following a strong performance by the Beer segment in the first half of fiscal 2017, Constellation Brands (STZ) expects the segment’s net sales for fiscal 2017 to grow 16%–17%. The segment’s organic net sales are anticipated to grow 12%–13%.

We’ll discuss the company’s High West Distillery acquisition and the performance of the Wine and Spirits business segment in the next part of this series.

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