Constellation Brands Cuts Outlook on U.S. Wine Market Woes
Constellation Brands also cut its sales growth expectations for its Enterprise, Beer and Wine & Spirits divisions.
Constellation Brands plans to book a loss of up to $2.5 billion related to its wines and spirits business, as prolonged negative trends in the U.S. wine market continue.
The maker of Corona and Modelo beers, and Robert Mondavi and Casa Noble wines, also said it is facing slowing sales across its business as macroeconomic challenges – particularly rising unemployment – hurt demand.
The company on Tuesday said the noncash goodwill impairment charge of between $1.5 billion and $2.5 billion would hit results in the second quarter. It cut its full year per-share earnings outlook to between $3.05 and $7.92, down sharply from prior expectations of between $14.63 and $14.93.
Constellation in July raised its profit outlook, after recording a big jump in first-quarter profit helped by rising beer sales and improved margins.
On a comparable basis, the company on Tuesday raised the lower end of its per-share earnings guidance, now expecting between $13.60 and $13.80, from $13.50 and $13.80 previously.
Constellation said the impairment reflects updated expectations for its wine and spirits business, where sales trends in the U.S. wholesale market remain negative. It now expects sales in that division to be down between 6% and 4% this year, whereas it had previously forecasted sales would be roughly flat from the prior year.
The company is adjusting prices and boosting marketing to help some of its wine and spirits brands combat significant sales headwinds.
Other winemakers have reported challenges as well. In June, Duckhorn Portfolio cut its outlook after sales were pressured by the soft wine market.
Constellation’s beer business is experiencing softer-than-expected sales but holding up better than wine and spirits. The company expects beer sales to be up between 6% and 8% this year, down slightly from its prior view.
Chief Executive Bill Newlands said the challenging trends have been most notable in the top five states for its beer business, which account for more than half of its sales volumes. He said the company has seen a slight shift to customers buying value packs or buying at value-oriented channels.
The company’s overall sales growth is expected to be between 4% and 6% this year, down from its prior view of between 6% and 7%.