uploads///STZ Beer Q

What Drove Constellation Brands’ Impressive Beer Sales?

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Jan. 11 2019, Updated 7:31 a.m. ET

Strong demand is driving growth

Constellation Brands’ (STZ) top line growth in the third quarter of fiscal 2019, which ended on November 30, 2018, continued to be driven by demand for the company’s Mexican beer brands. Its beer business’s sales rose 16.0% to $1.2 billion in the quarter. Constellation Brands’ Modelo and Corona brands continued to deliver impressive results driven by strong distribution gains and innovations.

Rival Molson Coors’ (TAP) sales rose 1.8% to $2.9 billion in the third quarter of 2018 driven by higher pricing, volume growth in Europe, the United States, and Canada, and the impact of a favorable product mix in Europe. Anheuser-Busch InBev’s (BUD) revenue fell ~10% to $13.3 billion in the third quarter of 2018, while its organic revenue rose 4.5%. Anheuser-Busch InBev attributed its organic revenue growth to the strong performance of its premium brands and its revenue-management initiatives.

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Beer business’s performance

The double-digit growth in Constellation Brands’ beer sales was driven by higher volumes in its Mexican beer category, which contributed $143.8 million to its top line, and a $28.9 million contribution resulting from higher pricing in select markets. The 14.1% rise in the business’s shipment volumes in the quarter was driven by continued consumer demand, increased marketing efforts, product introductions, and the favorable timing of shipments.

Capacity expansion

To support the strong demand for its Mexican beer brands, Constellation Brands has been making significant investments in increasing its production capacity. The company expects to complete its Nava brewery capacity expansion by the end of fiscal 2019. It expects the 5-million-hectoliter capacity expansion at its Obregon facility to be completed ahead of schedule by the end of fiscal 2021.

Despite a challenging political environment, the company is continuing the construction of its Mexicali facility. According to the company, this facility will represent only 10% of its overall beer capacity in Mexico. The company expects its Nava and Obregon facilities to produce 400 million cases of beer when they’re completed.

Constellation Brands now expects its fiscal 2019 beer business sales to be at the high end of its guidance range of 9%–11% growth.

Next, we’ll look at the factors that influenced Constellation Brands’ fiscal 2019 third-quarter margins.

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