Constellation Brands (STZ) reported fourth-quarter earnings on Thursday, a day after announcing the sale of wine and spirits brands. Despite lower guidance for the current year, Constellation Brands stock rose.
Constellation Brands Earnings
Estimates: Wall Street expected Constellation Brands earnings per share to slide 10% to $1.71 as sales fell 2% to $1.725 billion.
Results: Constellation Brands fell 3% to $1.84 a share as sales rose 2% to $1.8 billion.
Outlook: Constellation Brands sees fiscal 2020 earnings of $8.47-$8.77 a share, or $8.50-$8.80 excluding the wine and spirits brands being sold to Gallo. Analysts expected Constellation Brands earnings of $9.30 a share.
The company recognized a $164 million decrease in the fair value of its Canopy Growth (CGC) investments in Q3. In fiscal Q2, Constellation booked a $639 million unrealized gain on its initial Canopy investment. And in fiscal Q1, it recognized a $258 million unrealized gain.
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Wine, Spirits Brands Sold
The company in January said that it was exploring ”strategic alternatives” for its wine business, potentially for wine brands that sell for lower prices.
On Wednesday, Constellation said it agreed to offload around 30 brands from its wine and spirits business — mainly products that sell at $11 or below — to E. & J. Gallo Winery for $1.7 billion. The sale also includes facilities in California, New York and Washington.
The move, Constellation said, would help the company focus on “a more premium set of wine and spirits brands.”
Constellation Brands Stock
Constellation Brands stock rose 3.5% in premarket trading on the stock market today. The stock has sailed lower since last fall on questions over whether the company overplayed its hand when it decided to invest $4 billion in Canadian marijuana producer Canopy Growth.
In January, after the its third-quarter earnings report, Constellation Brands stock plunged 12%. The company at that time cut its full-year guidance, citing “additional interest expense” for the financing it’s using to invest in Canopy Growth. In February, Constellation said it expected that investment to cost it 10 cents worth of earnings per share for the fourth quarter, delivering another blow to the stock.
However, Constellation Brands stock in recent weeks has found support at its 50-day line. The 50-day line is often a point in which investors step in to prop up a company if they really believe in its stock.
Constellation Canopy Growth Investment
Constellation believes its investment in Canopy Growth will help it tap the legal cannabis industry and, in turn, consumers who would rather get high than drunk. The move also installed Bill Newlands, Constellation’s CEO, on Canopy’s Board of Directors. Constellation CFO David Klein and Judy Schmeling, a director, also joined Canopy’s board as part of the investment.
Management has said it believes the investment in Canopy will add to its earnings in fiscal 2021. The fourth quarter marked the end of Constellation’s fiscal 2019.
But management, in January, also said it would provide separate forecasts related to the investment’s impact on Constellation’s profit and loss. That approach, management said, would highlight its growth potential, “which we believe is not currently reflected in our valuation.”
Canopy Growth and other marijuana stocks have flailed over the past year. The legal marijuana industry, still new in Canada, is losing money in an effort to be in more places for more customers.
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