Constellation Brands Q2 weighed down by Canopy Growth losses

Constellation Brands recorded a fiscal second-quarter loss of $525.2 million as it was hit by a $484.4 million loss on an investment it made in Canadian cannabis company Canopy Growth.

Last year, Constellation increased its stake in Canopy to 38% with an investment of around $4 billion.

In its first-quarter earnings earlier this year, Canopy recorded a CAD 1.28 billion total loss. Despite the figures, Constellation remains upbeat about the Canadian firm’s prospects.

“Canopy’s business is rapidly evolving, and their financial results will likely be volatile as they continue to focus on their path to profitability,” Constellation CFO David Klein said in a conference call.

For the three months to the end of August, Constellation recorded a 2% rise in net sales to $2.34 billion as it continues to be boosted by the performance of its Corona and Modelo beer brands.

Net sales in the beer unit were up 7.4% year-on-year while wine and spirits net sales were down 8.9%. In April, Constellation announced plans to sell about 30 wine and spirits brands to Gallo for $1.7 billion and has since secured a deal to sell Black Velvet Canadian Whisky for approximately $266 million.

Speaking of the Q2 results, Constellation CEO Bill Newlands said: “The winning streak for our beer business continues with Modelo Especial generating the most growth in the entire US beer category, while Corona remains the #1 high-end beer brand family.

“This powerful combination gives us confidence in high-single-digit beer growth for years to come. Our wine and spirits innovation pipeline is primed to launch impactful product introductions as we head into the key selling season this fall.”

David Klein added: “We continue to deliver impressive beer business operating performance and cash flow results. The share repurchases we made during the quarter reflect the confidence we have in our long-term business model, and our ongoing commitment to return cash to shareholders.”

Constellation, which also owns brewers Ballast Point and Four Corners, has revealed plans to capitalise on the popularity of spiked seltzer with a new Corona-branded variant to go on sale next year.

Newlands said: “Corona carries unbelievably strong brand equity as the number one most-loved brand among both Hispanic and total population drinkers age 21 to 54. And that’s why we’ve decided to put the Corona brand name on our new seltzer. And of course, the refreshment characteristics of seltzers perfectly match Corona refreshment DNA.

“We believe that seltzers are here to stay and will therefore accelerate the volume shift into category from the low end to the high end.”

In recent months, Constellation has acquired minority stakes in US spirits producers Montanya Distillers and Durham Distillery.