Beer fuels Constellation's profit rise

Beer consumption may be declining in Australia and the United States, but strong sales of the amber ale for Constellation Brands has lead the company to increase its profit forecast for the year.

The company now expects to bring in adjusted per-share earnings for the year of between $6.30 and $6.45, compared with its previous estimate of between $6.05 and $6.35.

“It has been another dynamic quarter for our business and I am proud of our impressive financial results and recent accomplishments,” said Rob Sands, president and chief executive officer, Constellation Brands. “We sold our Canadian wine business as part of our strategy to focus on premium, margin accretive, growth opportunities. We increased our functioning brewery capacity and innovation flexibility to support our fast-growing, high-end Mexican beer portfolio with the purchase of the Obregon brewery operation in Mexico. We strengthened our premium wine and spirits portfolio with the acquisitions of Charles Smith Wines and High West Distillery, and we repurchased a significant number of our shares. Our business has never been stronger and the future prospects across our beer, wine and spirits portfolio are compelling.” 

In the latest quarter, Constellation’s organic beer sales rose 15%, with the company noting it shipped 8.4 million more 24-pack beer equivalents in its latest quarter than the same quarter a year ago.

Constellation is also pinning its hopes on craft beer and spirits. This week it bought craft whiskey maker High West Distillery for around $US160m, while last year it acquired craft-beer brewer Ballast Point.

The company says it expects beer sales to rise 16% to 17% in 2017, with operating margins in the high teens. However, there are fears the Trump presidency will bring Consellation's share price undone. 

Despite the company's positive profit announcement, shares in the company fell as much as 8.9% yesterday to $144. 

Reuters noted that investors are jittery about President-elect Donald Trump's proposals to tighten cross-border trade.

"There is a high level of investor skittishness around the stock due to potential tax changes from the new administration," SunTrust Robinson Humphrey analyst William Chappell Jr. wrote in note.

Trump has called for a tax on foreign imports called "border adjustability."

The proposal, which the President elect believes will boost US manufacturing, would make imports 20% more expensive.

Constellation is considering sourcing natural gas in the United States instead of Mexico to produce glass bottles for its Mexican beers.

"That's just one example of things we can do in our supply chain so we turn that into a US cost instead of a Mexican cost and we then have a deductible expense for US tax purposes," Constellation said on an earnings call with analysts.