uploads///STZ Beer Q

Constellation Brands’ Beer Segment: Key Drivers behind Q3 Sales

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Jan. 10 2017, Updated 7:38 a.m. ET

Higher volumes

Constellation Brands’ (STZ) Beer segment remained a key growth driver in fiscal 3Q17, which ended on November 30, 2016. The Beer segment’s volumes grew 12.3% in fiscal 3Q17, mainly due to demand for the company’s popular imported beer brands, including Corona and Modelo brands.

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Sales growth in 3Q

Constellation Brands’ Beer segment sales rose 16.0% to $964.6 million in fiscal 3Q17. Aside from higher volumes, the segment also benefitted from favorable pricing in certain markets. Also, the Ballast Point craft beer brand contributed $31.8 million to the segment’s fiscal 3Q17 sales.

Constellation Brands acquired leading craft brewer Ballast Point in December 2015 to capture the growing demand for craft beers. In the fiscal 3Q17 conference call, Constellation Brands’ CEO Rob Sands stated that Ballast Point continued to be the fastest-growing major craft brand in the country and delivered double-digit depletion growth in the quarter. Depletion volumes indicate the shipments directly sold by distributors to retailers during a certain period. In fiscal 3Q17, the Beer segment’s overall depletion volumes grew 10.7%.

The Beer segment’s operating income rose 15.1% to $335.7 million, driven by higher volume and increased pricing. However, this growth was partially offset by increased marketing investments. Constellation Brands constitutes 2.2% of the First Trust Consumer Staples AlphaDEX Fund (FXG).

Capacity expansion

In December 2016, Constellation Brands completed the acquisition of the Obregon brewery operation in Mexico from a subsidiary of Anheuser-Busch InBev (BUD) for a net amount of $583.4 million. The brewery, which has four million hectoliters of production capacity, should help the company meet continued demand for its Mexican beer brands.

The company completed the expansion of production capacity at its Nava Brewery facility from 10 million hectoliters to 20 million hectoliters in June 2016. It plans to add an additional 5.0 million hectoliters of capacity to the Nava Brewery facility by summer 2017 and another 2.5 million capacity by early 2018.

We’ll discuss the performance of the company’s Wine and Spirits segment in the next part of this series.

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