Skip to content

Corona parent Constellation Brands talks up the beer business after the ‘chaos’ of hard seltzers fizzles – MarketWatch

Hard seltzer has gone soft, but Constellation Brands Inc. says that’s all right because its beer portfolio will generate growth for the company.

Constellation Brands STZ.B, +2.32% reported a second-quarter earnings miss on Tuesday, though sales beat expectations. The company’s beer business, which includes Corona and Modelo Especial, was up 14% to $1.861 billion. Total sales were $2.565 billion.

“As it relates to our hard seltzer business […] we’re unique in our position versus our competitors in this space, as our primary growth is coming from our core beer portfolio and we’re not reliant on the growth of hard seltzers and ABAs [alternative beverage alcohol] to achieve the medium-term growth goals of our beer business,” said Constellation Chief Executive William Newlands on the earnings call, according to FactSet.

“The hard seltzer landscape has shifted considerably in recent months. Therefore, we’ve lowered our growth expectations for Corona Hard Seltzer, resulting in a sizable obsolescence charge taken for Q2.”

Boston Beer Co. SAM, +3.71% shares took a hit last month when the Sam Adams parent discussed slowing growth in the hard seltzer category. Boston Beer’s hard seltzer brands include Truly.

See: The hard-seltzer decline hits Boston Beer’s stock again

Truist analysts are calling it the “great seltzer reset.”

“We believe the momentum [Constellation] currently has in its Beer segment, especially with the on-premise channel returning closer to normal, the aggressive pricing levers (above the hist. 1-2% increase), normalized inventories by the end of the fiscal year, as well as depletion momentum, should continue to benefit the category in F2H despite the tough comparisons,” analysts led by Bill Chappell wrote.

“That said, the seltzer category has continued to lag and the expectations have reset lower, especially given the company made significant investments behind the category throughout F1H.”

Truist rates Constellation stock hold with a $213 price target.

To be sure, Newlands said Constellation will continue to focus on hard seltzer and other alcohol alternatives moving forward. But he says the frenzy in the category will calm as companies refocus and innovate.

“In the short-to-medium term, we believe that there will be consolidation within the hard seltzer/ABA space primarily due to the chaos of SKU [stock-keeping unit] and brand proliferation, with too many new entrants that don’t have the velocity or consumer demand to warrant shelf space,” said Newlands.

“We also believe this subcategory will evolve beyond low calorie, low carb offerings and open up to more distinctive consumer value propositions that include things like more flavor, different alcohol bases and functional benefits.”

Also: Topo Chico Margarita Hard Seltzer coming in 2022

To that end, Constellation says it has Corona Refresca, a malted beverage that comes in flavors like coconut lime, and Corona Hard Seltzer Limonada, made with lemon and lime juice. The company is also taking another look at the hard seltzer portfolio to be sure it’s aligned with consumer tastes.

“Constellation continues to impress with unrelenting demand for Modelo Especial,
reliable cash generation of Corona, and incremental contribution from Pacifico,” wrote MKM Partners’ Bill Kirk in a note.

“On Seltzer, we believe category growth isn’t enough to deliver Corona Hard Seltzer expectations, and the brand is at risk of being discontinued.”

MKM rates Constellation stock neutral with $226 fair value estimate.

Don’t miss: If you like Coors beer, here’s a Coors whiskey to try

“We believe that consumer demand to return to bars and restaurants will continue to drive healthy overall depletions for both Beer and Wine & Spirits segments over the next few quarters,” wrote UBS analysts in a note.

Constellation’s wines and spirits portfolio includes Kim Crawford and Svedka. Wine and spirits sales fell 18% to $509.8 million in the second quarter.

UBS rates Constellation stock buy with a $270 price target, up from $264.

Constellation has slipped 0.7% for the year to date while the benchmark S&P 500 index SPX, +0.83% has gained 17.8% for the period.