Shares of Constellation Brands (STZ 0.28%) edged higher in pre-market trading Thursday morning after the Corona distributor topped estimates on the top and bottom lines.
Constellation -- whose brands include Corona beer, Svedka vodka, and Cook's champagne -- said sales rose 2% to $1.8 billion, ahead of expectations at $1.73 billion. Adjusted operating income increased 8% to $586 million, but adjusted earnings per share slipped 3% from a year ago to $1.84 due in part to a higher tax rate. That figure still beat the analyst consensus at $1.72.
As had been rumored, Constellation also said it had agreed to sell a portion of its wine and spirits business for $1.7 billion to E. & J. Gallo Winery, freeing up capital to invest in high-margin, high-growth businesses like beer and marijuana through its minority stake in Canopy Growth (CGC -6.28%). The company said separately that it recorded a $1.97 billion unrealized net gain from the increase in the value of its stake in Canopy.
Management said the beer business delivered industry-leading growth with sales up 9.3% to $1.09 billion in the quarter and operating income increasing 16.5% to $441.4 million. Its wine and spirits business, however, continued to struggle as sales fell 7.6% and operating income dipped 5.5%. The deal with Gallo -- to sell around 30 wine and spirits brands, most of which retail for $11 a bottle or less -- should help performance improve in that segment.
New CEO Bill Newlands said, "We've positioned our wine and spirits business for success with our announced plans to sell a portion of the business, which enables us to continue to strategically focus on our powerhouse, high-margin, high-growth brands."
For fiscal 2020, the company guided for earnings per share between $8.50 and $8.80, down from a comparable figure of $9.34 last year as the Gallo transaction will take a chunk of profits away because those brands contributed $1.1 billion in sales last year. Newlands also said that the company would deliver top-line growth in the mid to high single digits over the next three to five years.
As of 9:15 a.m. EDT on Thursday, the stock was up 1.7% in pre-market trading. Shares are down 21% over the last 12 months.