Constellation Brands issues profit warning, expects up to US$2.5B impairment on wine-and-spirits unit 

USA – Constellation Brands, the producer of popular beverages such as Casa Noble Tequila and Modelo beer, has issued a profit warning, anticipating an impairment of up to US$2.5 billion on its wine-and-spirits division.  

The company attributed this write-down to ongoing negative trends in the U.S. wholesale market, specifically citing declines in both the overall wine market and its mainstream premium wine brands. 

As a result of these challenges, Constellation has revised its forecast for annual net sales growth.  

Previously, the company projected growth between 6 – 7 percent, but this has now been adjusted to between 4 – 6 percent.  

Within its wine-and-spirits segment, Constellation had expected net sales to range from a slight decline of 0.5 percent to a minor growth of 0.5 percent. However, the company now forecasts a sales drop of between 4 percentand 6 percent in this segment. 

The anticipated impairment is expected to significantly impact Constellation’s reported earnings per share (EPS).  

The company’s earlier forecast projected EPS to range from US$14.63 to US$14.93, but this has been drastically reduced to a range of US$3.05 to US$7.92 per share.  

On a comparable basis, EPS is expected to see a slight increase, moving from the previously forecast range of US$13.50 to US$13.80 to a revised range of US$13.60 to US$13.80. 

Constellation also expects a downturn in its enterprise operating income as a consequence of the impairment.  

The company initially forecast growth of between 10 – 12 percent, but it is now predicting a decline of between 36 and 68 percent. Comparable enterprise operating income is forecast to rise by 8 percent to 9 percent, slightly down from the earlier projection of 8 – 10 percent growth. 

The company’s beer segment, which includes the popular Modelo brand, is also expected to see a slight dip in net sales growth from the earlier 7 – 9 percent down to 6 – 8  percent. 

Bill Newlands, Constellation Brands’ president and CEO, noted, “The commercial and operational execution initiatives are improving the performance of our largest brands, but we continue to face incremental category headwinds further affecting our outlook for this fiscal year.”  

He added that while macroeconomic factors such as rising unemployment have slowed consumer demand growth, the company’s beer brands remain strong, with loyalty among core consumers showing resilience. 

In response to these challenges, Constellation has considered selling some of its wine and spirits assets, including certain vineyards and facilities, as part of its strategy to offset softer sales and align its network with its May acquisition of the upscale Pinot Noir winery Sea Smoke in Santa Barbara County. 

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