Constellation Brands ‘ decision to sell its Svedka vodka brand is a step in the right direction as the Modelo and Corona brewer focuses on its high-end businesses. The news Constellation said Tuesday it will sell Svedka to New Orleans-based Sazerac, which owns hundreds of brands from distilleries around the world. While terms of the deal were not disclosed, Constellation said the transaction is expected to close in the “coming months.” Svedka, which came with Constellation’s purchase of Spirits Marque One back in 2007, is currently part of the company’s struggling wine and spirits unit. Home to brands such as Kim Crawford and Meiomi wines and Casa Noble and Mi Campo tequilas, the business has been a thorn in Constellation’s side. Wine and spirits sales and operating income were both down double-digit percentages in the company’s fiscal 2025 second quarter . For all of fiscal 2025, Constellation expects wine and spirits to deliver a full-year net sales decline between 4% to 6%. Constellation shares, which were little changed Tuesday, have dropped 1.6% year to date versus the S & P 500 ‘s nearly 27% advance in 2024. Bernstein analysts called the Svedka news a “clear positive.” STZ .SPX YTD mountain Constellation Brands YTD Big picture The Svedka transaction is part of management’s “premiumization” strategy to reshape its wine and spirits portfolio. Over the past several years, Constellation has been shedding lower-priced labels. In 2020, Constellation sold Paul Masson brandy to Sazerac for $255 million. A year later, Constellation sold 30 brands, including Arbor Mist, Black Box, Clos du Bois, and Estancia, to E & J Gallo Winery for $810 million. Wine and spirits have been a consistent drag on the company’s earnings due to weaker consumer demand, retailers buying less wine from wholesalers, and consumers shifting toward premium offerings. In beer, that’s where Constellation really shines. With Mexican brands Modelo, Corona, and Pacifico, sales for the unit rose 6% year over year to $2.53 billion in the company’s fiscal second quarter — effectively matching the Bloomberg estimate of $2.52 billion. Quarterly operating income rose 13% to $1.78 billion, above expectations of $1.03 billion. During the post-earnings conference call, management said the company’s beer business remained the clear winner across the total beverage industry. Bottom line Jim Cramer has been calling for Constellation to dispose of its entire wine and spirits business and put all of its weight behind beer, the key driver of growth. To that end, the Svedka sale is another positive move. “They’re getting rid of something that is negative for their earnings,” Jim said Tuesday during the Investing Club’s Morning Meeting. The company’s beer, which is made south of the border, may face new headwinds if President-elect Donald Trump follows through on plans to impose 25% tariffs on imports from Mexico. Levies of this magnitude could hit Constellation’s margins because management would be forced to either pass higher prices along to customers or eat them. During Morgan Stanley’s consumer and retail conference, Constellation CFO Garth Hankinson said Tuesday afternoon there are several levers to pull to deal with any tariffs. He cited accelerating cost savings, making sure there’s plenty of supply in the U.S., and how to balance incremental price increases. Those possibilities are being explored but no decisions will be made until tariff plans become policy. While the situation is still unclear, we currently have a buy-equivalent 1 rating on Constellation shares and a $300 price target. Last week, Jim said the stock’s decline was puzzling because he couldn’t understand how anybody would be surprised by Trump’s tariff plans. That’s why Jim last Tuesday said the stock was a buy on the dip. (Jim Cramer’s Charitable Trust is long STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Constellation Brands Inc. Svedka vodka at a liquor store in the Upper East Side neighborhood of New York, US, on Friday, June 28, 2024.
Bing Guan | Bloomberg | Getty Images
Constellation Brands‘ decision to sell its Svedka vodka brand is a step in the right direction as the Modelo and Corona brewer focuses on its high-end businesses.