Constellation Brands To Divest Ballast Point Brand & Assets

Constellation Brands Inc. (NYSE:STZ) signed an 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.

The company decided to sell the popular craft beer brand on the recent 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 upcoming product launches — including Corona Hard Seltzer — which is scheduled to be launched in spring 2020.

Furthermore, the company expects the sale to be accretive to its depletion and margin trends, with slight gains likely to be realized, following the closing of the transaction. It anticipates closing the transaction by the end of fiscal 2020.

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, following the completion of the transaction.

Coming back to Constellation Brands, it has been significantly gaining from strength in the beer business over the years. In second-quarter fiscal 2020, sales at the beer business improved 7.4%, marking the 38th straight quarter of growth. This was mainly driven by a 5.3% increase in shipment volume and 6.2% depletion growth.

Solid portfolio depletions and market share gains mainly stemmed from continued strength in the Modelo and Corona brand families. In fact, Constellation Brands’s beer business was the most significant contributor to the U.S. beer market, courtesy of gains at Modelo Especial, Corona Premier and Corona Refresca. Impressively, for fiscal 2020, management anticipates net sales and operating income growth of 7-9% for the beer segment.

Shares of the leading alcohol company have gained 14.8% year to date, outperforming the industry’s growth of 9.6%. The company currently carries a Zacks Rank #3 (Hold).

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