Constellation Brands (NYSE:STZ) is trying to get its house in order after going on a spending spree over the past few years in an attempt to drive growth. Thus far, most of those efforts have failed to deliver, so now, it's refocusing on a group of premium brands and future growth opportunities.

With its third-quarter earnings release scheduled for Jan. 8, investors will want to know whether the adult beverage company's plans are on track, even though its forays beyond its core competency are likely to weigh on performance again.

Corona beer bottles at beach

Image source: Constellation Brands.

Brewing up trouble

Constellation Brands is now shedding some of the businesses it picked up during that spending spree. In December, it announced it was selling Ballast Point Brewing. The price was not disclosed, but it was likely dramatically less than the $1 billion it paid for the craft brewer back in 2015.

As growth in the craft beer segment began to slow, Constellation was forced to write down the value of the brewer. It paid an absurd amount for the regional brewer to begin with -- some $3,400 per barrel. But in the context of a pair of deals from 2019 -- Boston Beer paying $1,000 per barrel for Dogfish Head Brewing, and Anheuser-Busch InBev (NYSE: BUD) spending less than $500 per barrel for Craft Brew Alliance (NASDAQ: BREW) -- it's even more clear how steeply Constellation overpaid.

But the beer business isn't all bad for Constellation: Its Corona and Modelo brands continue to post strong sales as Mexican beer remains popular, but even within that portfolio, results are hit and miss. Modelo Especial has been a surprise hit, generating the fastest growth in the company's entire U.S. beer category. Depletions (i.e., sales to distributors and retailers) grew 15% in the third quarter. But sales of Corona Extra were flat. Still, Corona has tremendous brand value -- it's the sixth-largest beer brand in the country -- so Constellation expects that it will gain significant additional traction in the years ahead.

Not greening the portfolio

Where the company is not expecting upbeat results is with its investment in marijuana producer Canopy Growth (NASDAQ:CGC), which along with much of the rest of the Canadian marijuana industry suffered a collapse in value in 2019.

Although Canopy remains the global leader in cannabis sales, the business suffered huge losses this year that were fueled by an out-of-control stock-based compensation system. The board subsequently fired its CEO, and in December, Constellation announced it was installing its CFO in the executive position to rein in its investment. The situation isn't likely to turn around quickly. Constellation admits that results from the pot producer will be volatile and that it may need to write down the value of its stake in the business.

Yet there is potential here, because it's also clear that the regulatory and ramp-up issues in the Canadian market will eventually get sorted out. In the interim, Canopy has the launch of new marijuana-infused beverages to look forward now that the Cannabis 2.0 market is rolling out in Canada. New edibles, including chocolates and baked goods, will be part of it, and these new products could be a salve to the business.

Premium opportunities

What Constellation Brands wants most is to fashion itself into a premium adult beverage business. Across beer, wine, and spirits, the trend toward premium-priced, high-end beverages has been the one constant in recent years.

Constellation tried to sell its low-end line of wines and spirits to E.J. Gallo for $1.7 billion, but the plan ran into some antitrust concerns, and it had to revise the deal to remove some brands and cut the purchase price to around $1.1 billion. Constellation still intends to sell off the remaining low-end lines. As President and CEO Bill Newlands told analysts last quarter during the earnings call, "We will continue to maintain our focus on premiumization, innovation, and brand building as the transformation strategy evolves for our wine and spirit business."

More struggles to come

Analysts forecast that Constellation's sales will decline 1% to $1.95 billion for the quarter as the portfolio realignment takes hold, but they're also forecasting a 20% drop in earnings to $1.90 per share. Constellation doesn't offer quarterly guidance, but it did raise its full-year earnings per share outlook to a range of $9.00 to $9.20 -- excluding the expected hit from Canopy Growth, which it adjusts for so that investors can focus on its core business.

Constellation Brands stock rose 18% in 2019, and if it can continue pushing its way to the leadership position in premium beer, wine, and spirits, it's distinctly possible investors will push its share price even higher in 2020.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.