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Constellation Brands (STZ) Sells Paul Masson, Concludes Divestitures

Zacks Equity Research
·4 min read

Constellation Brands Inc. STZ has concluded the final phase of its transaction related to the divestiture of its low-end wine and spirits brands through the sale of the Paul Masson Grande Amber Brandy brand, related inventory and interests in certain contracts to Sazerac for $265 million. The transaction forms part of the company’s efforts to accelerate revenue and operating margin growth for the wine and spirits business by building a portfolio of distinguishing, higher-end brands.

As part of the sequence of transactions to enhance the premium wine and spirits portfolio, Constellation Brands completed the divestiture of a portion of its wine and spirits portfolio to E. & J. Gallo Winery for an aggregate of $810 million. The transaction included Constellation Brands’ brands priced at $11 retail and below, including certain related facilities located in California, New York and Washington State.

Simultaneously, the company sealed its separate but related deal with Gallo to sell the New Zealand-based Nobilo Wine brand, and related assets and liabilities for $130 million. It also completed the divestiture of certain brands, related inventory, interests in contracts and liabilities of its grape juice concentrate business to Vie-Del Company. Notably, the divestitures position Constellation Brands well to benefit from the persistence of premiumization trends in the market.

Lately, the company’s wine & spirits premiumization strategy is playing out well, as evident from accelerated growth for the Power Brands and strong margin performance in third-quarter fiscal 2021. Notably, the wine and spirits business delivered double-digit growth at high-end Power Brands in IRI channels, including Kim Crawford, Meiomi and The Prisoner Brand Family, which outpaced the U.S. high-end wine and spirits category. This along with higher shipments aided the segment’s sales in the reported quarter. Sales in the wine and spirits segment increased 10%, while organic net sales grew 13%. Moreover, shipment volume rose 3.1%, while organic shipment volume was up 6.5%.

Additionally, the company has been making investments to fuel growth of its power brands through innovation, capitalizing on priority, consumer trends, with successful product introductions. Some of the recently introduced products are the Prisoner Cabernet Sauvignon and Chardonnay varietals, SVEDKA and High West ready-to-drink cocktails, Ruffino wine spritzer, and Meiomi Cabernet Sauvignon.

For fiscal 2021, the company predicts depletion growth of 2-4% for the retained Power Brand portfolio, after the divestitures of wine and spirits brands.

Conclusion

The aforesaid transactions demonstrate Constellation Brands’ commitment to revive the performance of its wine & spirits business. The sale of the low-end brands will help it concentrate on more lucrative premium wine & spirits brands, which should enhance returns and shareholder value. The company expects to use the proceeds from the transaction to reduce debt.

 


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Shares of the leading alcohol company have gained 24.5% in the past three months compared with the industry’s growth of 15.8%. The company currently carries a Zacks Rank #3 (Hold).

Key Beverage Stocks to Watch

The Boston Beer Company, Inc. SAM delivered an earnings surprise of 23.1%, on average, in the trailing four quarters. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Monster Beverage Corporation MNST has an expected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2.

Molson Coors Beverage Company TAP, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 3.7%.

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