Constellation Brands CEO says slower growth of hard seltzer will ‘probably’ continue in future

Constellation Brands CEO Bill Newlands told CNBC’s Jim Cramer on Wednesday that he still sees development prospects for hard seltzer, despite the fact that the once-hot category has cooled in recent months and may remain so.

In an interview with “Mad Money,” Newlands stated that the firm missed per-share earnings projections in its most recent quarter, which it disclosed before Wednesday’s opening bell, due to a relative slowdown in hard seltzer sales.

Constellation, the parent company of Corona and Modelo, said it earned an adjusted $2.38 per share in the quarter ended Aug. 31, compared to Wall Street’s consensus forecast of $2.77. The corporation took a $66 million obsolescence charge for surplus hard seltzer inventory.

“Our entire miss was because of the obsolescence charge,” Newlands said. “When you look at our top line, you’ve got brands like Modelo that were up 16%. That continues to increase household penetration and velocity. … You see great takeout on some of our key wine brands. We remain extremely excited about the growth profile of all of our brands,” he continued.

“We had a one-time charge that obviously hurt the bottom line, but we raised guidance because we have a lot of confidence in being able to absorb that charge and still beat the numbers at the end of the year.”

Constellation Brands, which released its Corona Hard Seltzer last year, is not the only alcoholic beverage business facing difficulties in the market.

In July, Boston Beer reported lower-than-expected quarterly results due to sales of their Truly hard seltzer brand. As the recession continued, Boston Beer withdrew its earnings guidance in September.

In 2019, hard seltzer exploded in popularity, with White Claw being one of the most well-known brands. It spurred a rush of new entrants into the market from firms such as Constellation, Bud Light’s parent company Anheuser-Busch InBev, and others, as corporations sought to capitalize on the opportunity during a period of declining beer consumption.

“Certainly, the seltzer category has had a bit of a lid put on it in the last, say, eight weeks or so, and everybody overestimated what the growth profile was going to look like for this year. But it’s still a fairly minimal part of our business,” Newlands told Cramer, explaining that Constellation sees its core beer business as its main driver of growth.

“We still think that seltzer is going to be an important part of the category going forward, but probably at a much lower growth profile,” he said.

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