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Why Constellation Brands Sold Its Canadian Wine Business

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Dec. 28 2016, Published 3:49 p.m. ET

Price movement

Constellation Brands (STZ) fell 4.4% to close at $150.79 per share during the third week of December 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -4.4%, -2.5%, and 6.9%, respectively, as of December 23.

STZ is trading 1.0% below its 20-day moving average, 4.4% below its 50-day moving average, and 5.1% below its 200-day moving average.

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Related ETF and peers

The iShares Russell 3000 (IWV) invests 0.12% of its holdings in Constellation Brands. The YTD price movement of IWV was 13.8% on December 23.

The market caps of Constellation Brands’ competitors are as follows:

  • Anheuser-Busch InBev (BUD): $174.4 billion
  • Molson Coors Brewing (TAP): $20.8 billion

Latest news on Constellation Brands

Constellation Brands has sold its Canadian wine business, which includes Jackson-Triggs and Inniskillin, wineries, vineyards, offices, facilities, and Wine Rack retail stores, to Ontario Teachers’ Pension Plan for ~$1.0 billion Canadian.

Constellation Brands reported, “The company received cash proceeds, net of repayment of outstanding debt, of approximately C$765 million, subject to post-closing adjustments. The sale of the Canadian wine business aligns with the company’s focus on driving higher growth, higher-margin business activities, and its capital allocation strategy, which includes returning value to shareholders through cash dividends and share repurchases, and making select, value-creating acquisitions while operating at a targeted leverage ratio.”

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Constellation Brands’ performance in fiscal 2Q17

Constellation Brands reported fiscal 2Q17 net sales of $2.0 billion, a rise of 17.6% over $1.7 billion in fiscal 2Q16. The company’s net income, EPS (earnings per share) of its Class A common stock, and EPS of its Class B convertible common stock rose to $358.9 million, $1.75, and $1.61, respectively, in fiscal 2Q17. That compares to $302.4 million, $1.49, and $1.38, respectively, in fiscal 2Q16.

The company reported non-GAAP (generally accepted accounting principles) EPS of $1.77 in fiscal 2Q17, a rise of 13.5% over fiscal 2Q16.

STZ’s cash and cash equivalents and inventories rose 113.4% and 0.19%, respectively, between fiscal 4Q16 and fiscal 2Q17.

Projections

Constellation Brands has made the following projections for fiscal 2017:

  • net sales growth of the Beer segment of 16.0%–17.0%, including an incremental benefit from its Ballast Point acquisition
  • net sales growth of its Wine & Spirits business in the mid-single-digit range and operating income growth in the mid- to high-single-digit range
  • EPS of $6.25–$6.40 on a reported basis and $6.30–$6.45 on a comparable basis

In the next part, we’ll look at LKQ (LKQ).

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