Constellation Brands (STZ) looked to rebound Thursday after weaker-than-expected quarterly earnings and a muted outlook pegged to rising costs associated with its $4 billion investment in cannabis specialists Canopy Growth Corp. (CGC) sent its shares to a two-year low.
The Corona beer maker said earnings for its 2019 fiscal year, which ends in March, to come in between $9.20 and $9.30 per share, down from a prior forecast of $9.60 to $9.75 and shy of the Street consensus of $9.43 per share. The reduction was linked to a pre-tax impact of around 25 cents a share from its debt-backed Canopy Growth investment in 2017, and a $164 million decrease in the fair value of the stake over the three months ending in November.
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Incoming CEO Bill Newlands, who replaces the retiring Rob Sands later this year, also cited weakness in the group's low-end wine business, but reiterated his faith in the company's move into the cannabis space, predicting a billion dollars in annual sales within the next 18 months.
"We are seeing strong consumer demand in the Canadian recreational cannabis market," Newlands told investors on a conference call late Wednesday. "According to the Canadian government, as of the third quarter of calendar 2018, Canadians spent at a run rate of almost $6 billion on cannabis products, the majority of which were purchased illegally for nonmedical use."
"As we've discussed, we believe the emerging cannabis space represents one of the most significant global growth opportunities of the next decade, and frankly, our life time," he added. "An opportunity that is opening up much more rapidly than originally anticipated."
Constellation brands shares rose 6% to $159.93 on Thursday, following Wednesday's 12.5% slump.