Modelo and Corona parent company says weak wine demand could impact latest earnings
Constellation Brands expects a $1.5-$2.5 billion non-cash goodwill impairment loss due to weak demand for wine
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Constellation Brands has been seeing soft demand in its wine and spirits segment — and the alcohol producer recently said it will weigh on its second-quarter results.
The company said Tuesday it expects to record a non-cash goodwill impairment loss during the second quarter for its wine and spirits segment that will amount to $1.5-$2.5 billion.
The expected write-down for the business "reflects the Company’s updated expectations of its fiscal 2025 outlook for its Wine and Spirits business due to continued negative trends primarily in its U.S. wholesale market, driven by declines in both the overall wine market and its mainstream and premium wine brands," according to Constellation Brands.
Constellation Brands's Meiomi Chardonnay wine is seen on a shelf at a liquor store in the Upper East Side neighborhood of New York, on June 28. (Bing Guan/Bloomberg via Getty Images / Getty Images)
The company is "taking incremental tactical pricing and marketing actions to support demand for our core brands but [is] facing operating deleveraging due to more significant top-line headwinds, which in turn we expect will also lead to an impairment charge of the goodwill associated with that Business," CFO Garth Hankinson said of Constellation’s wine and spirits segment in a press release.
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Constellation projected its wine and spirits business will now see a decrease of 4%-6% in its net sales in fiscal 2025. Its prior guidance had been a net sales decline of 0.5% to growth of 0.5% for the unit.
While speaking at a conference on Tuesday, CEO Bill Newlands said the "macro environment, particularly on the wine side, has been more challenging than we anticipated," according to a transcript.
"We’re doing a lot of cost work on the wine side, as I think we needed to do. And we would expect to see some of that start to be reflected in the back half of the year," he also said. "And our work with our distributor partners, I think, is better than what it has been in recent years."
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| STZ | CONSTELLATION BRANDS INC. | 235.91 | +2.23 | +0.95% |
Constellation Brands’ expected second-quarter wine and spirits business write-down came as part of a broader update that the company published for investors about its outlook for the fiscal year.
The alcohol producer now anticipates it will generate reported earnings per share (EPS) of $3.05-$7.92 for the fiscal year including the wine and spirits goodwill impairment. In its prior outlook, it had guided for $14.63-$14.93, according to the company.
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Meanwhile, for its annual comparable EPS, Constellation changed the lower-end of its range to $13.60 from $13.50. The higher-end remained $13.80.
"All in, while we believe an adjustment to our top-line growth expectations is prudent to reflect the near-term macroeconomic headwinds affecting our consumers, we remain confident in our ability to deliver against our initial double-digit comparable EPS growth expectations and have raised the lower-end of our initial comparable EPS guidance range for fiscal 2025," Hankinson said.
The Constellation Brands logo is seen on a smartphone screen. (Pavlo Gonchar/SOPA Images/LightRocket via Getty Images / Getty Images)
One of the macroeconomic headwinds that has contributed to recent overall slower demand growth for Constellation Brands products is unemployment, according to the company.
Still, Newlands said the company was "on track to deliver a solid mid single-digit volume increase this fiscal year for our Beer Business." The company updated its fiscal 2025 beer net sales growth estimate to be slightly lower, at 6%-8%.
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Its beer business includes brands like Corona Extra, Modelo Especial and Pacific, among others. Meanwhile, Prisoner Wine Company, Kim Crawford and Meiomi are among some of the brands in its wine portfolio.