Assessing Constellation Brands’ Fiscal 2020 Outlook

Constellation Brands’ (STZ) sales grew 7.1% to $8.12 billion in fiscal 2019, which ended on February 28. The company’s sales growth was mainly the result of an 11.6% rise in its Beer segment’s sales to $5.20 billion partially offset by a 0.2% decline in its Wine and Spirits segment’s sales to $2.91 billion.

The company ended the year with a 2.0% rise in its fiscal 2019 fourth-quarter sales to $1.80 billion and a 2.6% decline in its adjusted EPS to $1.84. Both its sales and earnings surpassed analysts’ expectations.

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For fiscal 2019, Constellation Brands’ adjusted EPS rose 6.7% to $9.28. The company’s reported EPS rose 53.2% to $17.57, reflecting the inclusion of a $1.97 billion unrealized net gain from an increase in the fair value of its investments in weed company Canopy Growth (CGC).

Constellation Brands expects its Beer segment’s sales and operating income to grow in the 7%–9% range in fiscal 2020, reflecting a deceleration in its growth rate compared to fiscal 2019. The company expects its Wine and Spirits segment’s net sales to decline in the range of 25%–30% and its operating income to decline by 30%–35%. The guidance for the Wine and Spirits segment reflects the impact of the company’s decision to divest 30 brands of its wine and spirits to E. & J. Gallo Winery for $1.7 billion. The divestiture of these brands is expected to be completed by the first quarter of fiscal 2020.

With this divestiture, Constellation Brands will be able to focus on the high end of its portfolio, which includes brands such as Robert Mondavi, Prisoner Wine, Kim Crawford, and Meiomi.

Constellation Brands expects its fiscal 2020 adjusted EPS to be in the range of $8.50–$8.80. This outlook includes the impact of its Wine and Spirits divestitures but excludes its equity earnings from Canopy Growth (CGC).

Constellation Brands expects its capex to be in the range of $800 million–$900 million in fiscal 2020. About $600 million worth of its capex will be directed toward the expansion of its production capacity for Mexican beer.

Constellation Brands plans to launch Corona Refresca, the company’s first non-beer beverage line, nationwide in the first quarter of fiscal 2020.