Beer, wine power growth at Constellation Brands

Constellation Brands, the owner of local wineries Ravenswood, Simi Winery and Robert Mondavi, announced Thursday further expansion of its profitable Mexican beer portfolio while predicting continued growth for its wine brands.

The company, headquartered in Victor, N.Y., said it would pay $300 million to acquire ?Anheuser-Busch InBev’s glass production plant in Nava, Mexico, next to its own brewery. Constellation Brands manufactures such Mexican brands as Corona, Modelo, Pacifico and Victoria.

It will enter into a 50-50 joint venture with Owens-Illinois Inc. to operate and own the new glass container plant, with Owens-Illinois paying $100 million. Constellation already uses Owens-Illinois as a supplier for its wine bottles.

The company also will expand its Nava brewery by?132.1 million gallons by the end of 2017 at a cost of as much as $550 million.

The announcements came as Constellation Brands announced its second-quarter net income of $196 million, or ?98 cents a share, compared to $1.5 billion, or $7.74 per share, from the same period last year. The lower earnings were attributed to a higher tax rate and a recall of its Corona Extra brand after the discovery that some contained small fragments of glass.

Its stock price ended at $84.40 on Thursday, down 1 percent from Wednesday’s close.

The company is unique in the North Coast wine industry as most wineries are privately operated. It is more of a competitor with diversified international firms such as Anheuser-Busch InBev and SABMiller, especially as consolidation continues in the adult beverage industry. The sector is in state of a flux as sales of large domestic beer brands decline, in large part to a strong craft beer market, including many Sonoma County brands.

Constellation’s net wine sales for the quarter that ended Aug. 31 was $640.7 million, up 2 percent from the same period in 2013. It predicts its wine and spirits sales for fiscal 2015 to be in low to mid single-digit range.

CEO and president Rob Sands told analysts in a conference call that the California harvest for wine grapes is running about a month ahead of last year and is now about 70 percent complete. Sands noted the California harvest is predicted to come in between 3.8 million and 4 million tons, down from 4.4 million tons last year.

“The quality of this year’s harvest looks to be very good, if not excellent,” Sands said. “From a pricing perspective, we continue to expect grape pricing to be flat to down slightly compared to last year, depending on the variety and location and demand.”

He noted that some the company’s facilities suffered minor problems from the Aug. 24 American Canyon earthquake, but none sustained structural damage. The company also announced the first-ever holiday advertising campaign for its Woodbridge by Robert Mondavi brand.

Still, the focus of the conference call was on its beer business. In fact, one analyst noted in the call, “believe it or not, I have a wine question.” The company targets an operating margin in the beer business in the mid 30 percent range in fiscal year 2018.

Constellation Brands contends it is uniquely positioned in the U.S. beer market, ?where overall beer sales dropped 1.9 percent in 2013, ?according to the Brewer’s Association, though craft beer was ?up 17.2 percent.

The company notes that Mexican beer remains popular product among consumers looking for a high-end product, similar those who have contributed to the craft beer boom, and has a big potential in the growing Latino market.

“Our beer business has tremendous momentum in the marketplace,” said Bob Ryder, executive vice president and chief financial officer. “We kind of got the growth that the craft brewers have, coupled with the margins that the large domestic guys have. We’re almost the best of both worlds.”

Brian Rosen, a Chicago-based adult-beverage consultant, ?said that Constellation Brands is benefiting from increased ?interest by millennial consumers who are attracted to ?more exotic beer and are not swayed by brand loyalty. ?He warned, however, that millennials will mature and move on other brands and drinks, such as craft bourbon and fine wine. “I drink Modelo and I’m as Anglo as they come,” Rosen said. “I will age out of it.”

He expects there will be an eventual dip in sales of the company’s Mexican beers as millennials drop off. The growing Latino market may fill some of the gap, he said.

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.