Constellation Brands forecast hit by higher costs to meet beer demand
By Siddharth Cavale
(Reuters) - Constellation Brands Inc STZ.N said it expects to spend up to $1.1 billion - almost double its previous forecast - to increase capacity at a Mexican brewery, hurting its full-year profit and cash flow forecasts and sending its shares down 5 percent.
The company, which makes Svedka Vodka and Robert Mondavi wine, also reported a better-than-expected fourth-quarter quarter profit, helped by strong sales of beers such as Corona and Modelo in the United States.
The growth in beer sales was largely driven by its acquisition last year of partner Grupo Modelo SAB de CV's GMODELOC.MX stake in a joint venture to produce and sell beer in the United States. Grupo Modelo was bought by Anheuser-Busch InBev SA (ABI.BR: Cotización).
The full control of Crown Imports LLC made Constellation the largest supplier of wine, beer and other alcoholic drinks in the United States and also gave it a brewery in Nava, Mexico.
The company has been concentrating its efforts on selling more beer as sales of its wines and spirits stagnate. Beer sales outstripped wine sales in the latest quarter and is expected to do so again next year.
The expansion of the brewery would help Constellation meet the rising demand for beer, and Stifel, Nicolaus & Co's Mark Swartzberg said the higher spending was an indication of the strength of the company's beer business.
"We take all of this (higher investment) as a mirror on strong beer trends and continue to see an attractive risk/reward based on the beer business and underlying cash flow," the analyst said.
Constellation on Wednesday said it would have to spend $900 million to $1.1 billion to double the brewery's capacity, up from its previous estimate of $500-$600 million. The company has spent $140 million on expanding the brewery so far. Continuación...