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Constellation Brands is experiencing weak demand in its wine and spirits segments, which the alcohol producer recently said will hurt its second-quarter results.
The company said Tuesday it expects to take a non-cash goodwill impairment charge of between $1.5 billion and $2.5 billion on its wine and spirits division in the second quarter.
Constellation Brands said the expected impairment for the business “reflects the company's updated expectations regarding the fiscal 2025 outlook for its wine and spirits business, driven by continued negative trends in the U.S. wholesale market, primarily due to declines in the overall wine market and in both mainstream and premium wine brands.”
Constellation Brands' Meiomi Chardonnay wine is displayed for sale at a liquor store in the Upper East Side neighborhood of New York City, U.S., Friday, June 28, 2024. Constellation Brands is scheduled to report earnings on July 3. (Bing Guang/Bloomberg via Getty Images/Getty Images)
“While we are implementing incremental pricing and marketing actions to support demand for our core brands, we are facing more significant sales headwinds resulting in trade payables reductions and, as a result, we also expect to incur a goodwill impairment charge associated with the business,” Chief Financial Officer Garth Hankinson said in a press release about Constellation's wine and spirits division.
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Constellation now sees its wine and spirits business' net sales declining 4% to 6% in fiscal 2025. Its previous outlook called for the division's net sales to decline 0.5% to increase 0.5%.
“The macro environment, particularly in the wine sector, has been more challenging than we expected,” Chief Executive Bill Newlands said at Tuesday's meeting, according to minutes.
“We've made a lot of cost savings in our wine division, which I think was necessary, and we expect to start seeing results in the second half of the year,” he said. “I also think the collaboration with our distributor partners is the best it's been in years.”
| Ticker | safety | last | change | change % |
|---|---|---|---|---|
| Steady | Constellation Brands Inc. | 240.71 | +2.74 |
+1.15% |
Constellation Brands' second-quarter impairment estimate for its wine and spirits business was announced as part of a broader update the company gave to investors on its outlook for the fiscal year.
The company now expects fiscal year earnings per share (EPS), including the wine and spirits goodwill impairment, to be between $3.05 and $7.92, up from a previous outlook of $14.63 to $14.93, the company said.
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Constellation, meanwhile, revised the low end of its full-year comparable EPS range to $13.60 from $13.50, while the high end remained at $13.80.
“Overall, we believe it is prudent to adjust our revenue growth expectations to reflect near-term macroeconomic headwinds impacting the consumer, but we remain confident in our ability to achieve our original double-digit comparable EPS growth expectations and have increased the low end of our original comparative EPS guidance range for fiscal 2025,” Hankinson said.
In this photo illustration, the Constellation Brands logo appears on a smartphone screen. (Pablo Gonchar/SOPA Images/LightRocket via Getty Images / Getty Images)
Unemployment is one of the macroeconomic headwinds contributing to the recent slowdown in overall demand growth for Constellation Brands' products, according to the company.
Still, CEO Bill Newlands said the company “expects to achieve solid mid-single-digit volume growth in our beer business this year.” The company slightly lowered its forecast for fiscal 2025 net beer sales growth to 6% to 8%.
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Its beer business includes brands such as Corona Extra, Modelo Especial and Pacific, while its wine business includes brands such as Prisoner Wine Company, Kim Crawford and Meiomi.
