Pressure on wine and spirits segment
Constellation Brands’ (STZ) lower sales in fiscal 3Q18[1. Fiscal 3Q18 which ended on November 30, 2017] resulted from a decline in its wine and spirits segment sales. Sales of the wine and spirits segment declined 10.3% on a year-over-year basis to $759 million in fiscal 3Q18.
Aside from the impact of the divestiture of the Canadian wine business, the segment’s performance was also impacted by natural disasters like hurricanes in some of the key markets and the wildfires in Northern California.
Beer segment performance
Constellation Brands’ beer segment accounted for 57.8% of the company’s fiscal 3Q18 overall sales, while the wine and spirits generated the remaining 42.2% of sales. Sales of the company’s beer segment grew 7.8% to $1.0 billion in fiscal 3Q18. Higher volumes of the Mexican beer portfolio contributed $56.6 million of the sales rise in the quarter. Also, higher pricing in select markets within the company’s Mexican beer portfolio contributed $16.6 million of the sales increase in fiscal 3Q18.
The segment saw strong sales during the Labor Day and Thanksgiving holidays, especially from the Corona Extra and Modelo Especial brands. The beer segment generated a significant rise in its operating margin, which we’ll discuss in part five of this series.
Fiscal 2018 guidance
Constellation Brands continues to expect its beer business sales to grow in the 9%–11% range in fiscal 2018. The company now expects the segment’s operating income to grow in the 18%–19% range compared to its previous guidance of a 17%–19% rise.
Constellation Brands now expects its wine and spirits segment results to come in at the lower end of the fiscal 2018 guidance range due to a slowdown in the industry. The company expects its wine and spirits segment sales to fall in the range of 4%–6% and operating income to be flat. Excluding the impact of the Canadian wine divestiture, Constellation Brands expects net sales growth of 4%–6% and operating income growth of 5%–7% in fiscal 2018.