Constellation Brands saw third-quarter net sales in its beer unit increase by 8.3% compared to last year, thanks to demand for Corona and Modelo Especial.
For the three months ended 30 November 2019, the company posted net sales of $2 billion, up 1% on last year. Net income rose 17% to $366.5 million.
However, Constellation said it recognised a $534 million decrease in the fair value of its investments in Canopy Growth Corporation, the Canadian cannabis producer. In 2018, the company increased its stake in Canopy to 38% with an investment of around $4 billion.
Within its wine and spirits business, Constellation posted a 9.7% sales decline and 12.4% reduction in operating income.
Last month, the company agreed to revise the terms of a wine and spirits deal with E & J Gallo Winery to address competitive concerns. Three Constellation-owned brands will be excluded from the deal, resulting in an adjusted transaction price of approximately $1.1 billion.
The wine and spirits business now expects fiscal 2020 net sales and operating income decline of between 8-10%, largely due to updated assumptions surrounding the close of the Gallo transactions.
“It’s shaping up to be a dynamic year at Constellation. We delivered strong performance in Q3 powered largely by our beer business and we are increasing our EPS and cash flow guidance for the year,” said Constellation Brands CEO Bill Newlands.
“Our wine and spirits transformation strategy is gaining traction and our revised agreement with Gallo paves the way for accelerated growth and margin performance for this business going forward.”
Constellation CFO David Klein, who will leave his role next week to become CEO of Canopy Growth, added: “The strong free cash flow we generated year to date reflects the powerful cash generation capability of our core business and will enable the company to return $4.5 billion in cash to shareholders in share repurchases and dividends through fiscal 2022.
“In addition, with debt reduction of almost $1.3 billion so far this year, we’ve made significant progress toward achieving our leverage target of less than four times.”