Constellation Brands announces plan to jettison 40% of wines and spirits
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Constellation Brands announces plan to jettison 40% of wines and spirits

Constellation Brands, the alcoholic drinks giant behind popular brands like Corona beer, Kim Crawford wine, and Black Velvet Canadian Whiskey, recently made a big announcement: it’s going premium-only. The company said that it is looking to discontinue – or divest itself of – as much as 40% of its wine and spirits labels in an effort to focus on the more upmarket section of its portfolio.

Constellation Brands share price has risen by 4% so far in 2019

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Source: Yahoo Finance

Looking to stoke investor sentiment, the company’s president and chief operating officer, Bill Newlands, reassured investors that “the best is yet to come”. He may be right – about 60% of the profit that Constellation derives from its alcohol portfolios comes from “power brands”. These are the company’s premium offerings – which, in Constellations world, means bottles that retail at more than $11.

Newlands, who will take over from incumbent Roob Sands as CEO on March 1, added more detail, saying: “We are in the process of optimizing the wine and spirits business with mid-single-digit growth rates and 30%-plus operating margins. We expect to deliver at least $4.5 billion in returns via dividends and shareholder buyback over the next three years.”

David Klein, the company’s chief financial officer, said: “So everything that is not a ‘power brand,’ you can assume that we’re either going to sell it, discontinue it, or milk it very quickly over the next year or so.”

There is just one exception to this statement: Woodbridge by Robert Mondavi. This label does include some less-than $11 bottles – but the brand is Constellation’s best seller, and Newlands claims that its Bourbon Barrell-Aged wines have performed incredibly, going from “zero to a million cases” in just three years.

Disclosure
Dominion holds Constellation Brands in its Global Trends Luxury Fund.


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