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Analyst: Constellation's Wine Sale Will Likely Be Dilutive For 3 Years

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Analyst: Constellation's Wine Sale Will Likely Be Dilutive For 3 Years

Alcohol company Constellation Brands, Inc. (NYSE: STZ) reached an agreement Wednesday to sell around 30 brands from its wine and spirits portfolio.

What Happened

Constellation Brands, perhaps best known for its Corona beer, will divest more than two dozen brands that retail for $11 and below, the company said in a press release.

E. & J. Gallo Winery agreed to buy the brands and related facilities in California, New York and Washington for $1.7 billion.

Constellation Brands CEO and President Bill Newlands said in the press release the company decided to divest its lower-priced brands to better focus on a "more premium" set of brands. The decision is expected to generate accelerated growth and shareholder value, he said. 

Why It's Important

Constellation may have included the Black Box brand in the sale, which is surprising, as it's the company's second-ranked wine brand, Macquarie Research's Caroline Levy said in a research report.

Black Box also recorded a three-year sales compounded annual growth rate of 23 percent.

Assuming Constellation is divesting 40 percent of its entire wine business — which carried a higher 25-percent EBIT margin rate — the deal could be dilutive by 6 percent in year one and dilutive by 4 percent in years two and three, the analyst said. 

What's Next

Constellation could use the proceeds of the sale to help lower its debt level and buy back its stock sooner than previously expected in order to return $2.5 billion to investors through fiscal 2022, Levy said. 

Related Links:

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Latest Ratings for STZ

DateFirmActionFromTo
Oct 2019MaintainsEqual-Weight
Oct 2019MaintainsOutperform
Sep 2019MaintainsEqual-Weight

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