On a GAAP basis, Constellation Brands’ quarterly results look pretty bad. But look under the hood, and there’s room for optimism.
CBrands reports net income of $1.5 million, or 1 cent a share, in the fiscal second quarter ended Aug. 31. A year earlier the company record a profit of $512.1 million. The loss came despite a 5% jump in sales to $2.38 billion.
To a large extent, the plunge in earnings appears to reflect the old accounting trick of throwing all the bad news into one quarter. And CBrands had bad news aplenty in the past quarter, starting with its investment in Canopy, a cannabis producer which, once again, resulted in a loss. Then there was the write off of the Mexicali brewery after construction plans resulted in “negative” feedback.
And there was a net loss of $33.4 million related to the divestiture of the “lower-margin, lower-growth wines and spirits brands and associated facilities, obsolesces in the beer segment, “driven by hard seltzer. Indeed, operating income fell 12% due to obsolescence in the beer segment, lower wine and spirits sales resulting from the sale of some brands, and, of course, Covid.
That explains why CBrands emphasize comparable results, which restate results to delete numbers generated by brands and businesses it has divested. The beer business delivered double-digit net sales growth thanks to continued strength of Modelo Especial and Corona Extra. The Wine & Spirits business also delivered sales growth with The Prisoner brand, Kim Crawford and Meiomi showing good results.