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Constellation Cuts Profit Outlook As Pot Investment Weighs And Shares Tumble

By Donna Ahern
Constellation Cuts Profit Outlook As Pot Investment Weighs And Shares Tumble

Corona-maker Constellation Brands Inc cut its 2019 profit outlook on Wednesday on the back of weak wine and spirits sales and costs related to its investment in a Canadian pot producer, sending its shares down 11%.

The brewer, one of the first alcoholic beverage makers to enter the growing cannabis industry with its over $4 billion investment in Canopy Growth, trimmed its earnings per share forecast to between $9.20 and $9.30 from $9.60 to $9.75.

The lower forecast reflects an about 25 cents per share pre-tax impact due to higher interest expenses related to the Canopy deal, which was financed with debt.

Analysts were expecting full-year earnings of $9.43 per share, according to IBES data from Refinitiv.

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Constellation has bet on Canopy Growth, Canada's largest pot producer, to cash in on the booming demand for recreational marijuana, whose use has been legalized in 10 U.S. states and in Canada.

However, Canopy Growth's worse-than-expected quarterly results in November, sent its shares down 9% on the day and reduced Constellation's fair value in the pot producer by $164 million.

Constellation said its wine and spirits business, known for brands such as Meiomi wines, High West whiskey and Svedka vodka, would decline in low-single digits for fiscal 2019.

The beer business remains a bright spot for the company, with sales rising 16% in the third quarter on demand for new low-calorie beer Corona Premier and Modelo.

The company now expects full-year sales in its beer business to be at the high end of the 9-11% range.

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Net income attributable to the company fell 38.5%. Excluding items, it earned $2.37 per share, topping the analyst average estimate of $2.06.

Operating margin decreased 60 basis points to 37.3% due to higher freight and marketing costs.

Its net sales rose 9.5% to $1.97 billion in the quarter and topped the average estimate of $1.91 billion, according to IBES data from Refinitiv.

Shares of the Victor, New York-based company were down lower at $153.16 in premarket trading.

News by Reuters, edited by Donna Ahern Checkout. Click subscribe to sign up for the Checkout print edition.

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