Constellation Brands, Inc. (STZ - Free Report) declared that it completed the agreement with Kings & Convicts Brewing Co. to sell the Ballast Point brand and related assets for an undisclosed amount. The sale will include Ballast Point-related production facilities and brewpubs — five in California and one in Chicago. However, Constellation Brands plans to retain the Craft & Specialty facility in Daleville, VA.
Per management, the divesture of Ballast Point is in sync with the company’s consumer-led premiumization strategy. This strategy emphasizes on endearing in growing sectors of the high-end U.S. beer market with strong brands capable of driving growth and strong margin performance. Also, this strategy has aided the Constellation Brands’ performance as one of the strongest growth drivers in the U.S. beer market.
Notably, the company sold the popular craft beer brand on the shift in trends in the U.S. craft beer industry. With the sale of the Ballast Point brand and related assets, Constellation Brands expects to capitalize on growth opportunities for its high-performing import portfolio and product launches — including Corona Hard Seltzer.
The acquisition of the Ballast Point brand is likely to be a game changer for Kings & Convicts. It expects to gain from the brand’s knowledge and market presence. With the acquisition, it plans to further develop its brand as well as the acquired Ballast Point brand. Kings & Convicts will retain the existing workforce of Ballast Point.
We note that the company’s premiumization strategy is gaining traction as its wine and spirits Power Brands (sold at price points of greater than $11) continue to outpace competitors in the high-end market. The power brands improved 9% in IRI channels in the fiscal third quarter. Further, the company expects steady progress on its premiumization strategy throughout fiscal 2020, with mid-single-digit revenue growth expected for power brands in the fourth quarter.
These apart, the company has been significantly gaining from strength in the beer business over the years. In third-quarter fiscal 2020, sales at the beer business improved 7.3%, driven by 6.8% rise in shipment volume and 7.3% overall depletion growth. Import beer depletion growth was 7.9%. Solid portfolio depletions and market share gains mainly stemmed from continued strength in the Modelo and Corona brand families as well as continued innovation. Meanwhile, the Corona Brand Family grew 7% in IRI channels on sustained strength of Corona Premier, innovations at Corona Refresca and renewed growth of Corona Extra.
For fiscal 2020, management estimates 7-8% net sales growth for the beer segment, with operating income growth of 8-9%.
In the past six months, shares of this Zacks Rank #3 (Hold) company have decreased around 15% compared with the industry’s decline of 23.1%.
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