Guidance cut drags on stock
Constellation Brands (STZ) stock fell 12.4% on January 9 as it lowered its earnings forecast for fiscal 2019, which ends on February 28, 2019. Constellation reported its fiscal 2019 third-quarter results yesterday. Its sales and adjusted earnings for the quarter, which ended on November 30, 2018, exceeded analysts’ expectations.
However, the company lowered its fiscal 2019 outlook to reflect the impact of additional interest expenses associated with the financing of its investment in leading cannabis company Canopy Growth (CGC) and the dismal performance of its wine and spirits business.
Weakness in wine and spirits
Constellation Brands is facing trouble at the lower end of its wine and spirits business. Constellation has been trying to improve its wine and spirits sales by focusing on premium products—in particular, wine brands with a retail price point of more than $11. The company has a strong portfolio of premium wines, such as Prisoner, Kim Crawford, Meiomi, and Robert Mondavi. We’ll discuss the performance of the company’s wine and spirits business in Part Three of this series.
Constellation Brands continues to be optimistic about its investment in Canopy Growth, and it’s confident that the leading cannabis company is on track to deliver its run-rate target of 1 billion Canadian dollars in revenue over the next 18 months. In a move to strengthen its position in the global cannabis space, Canopy Growth has recently made several strategic deals, including its acquisitions of hemp research and innovation company ebbu and global vaporizer designer and manufacturer Storz & Bickel and its collaboration with Battelle, a leading nonprofit research and development organization.
The volatility in Canopy Growth’s stock price had an adverse impact on Constellation Brands’ fiscal 2019 third-quarter earnings. We’ll discuss Constellation Brands’ third-quarter earnings in detail in the next article.