Summary:
- Constellation Brands is facing a shareholder lawsuit over allegations of misleading investors about the performance of its wine and spirits business, which experienced a 7% decline in net sales over the past year.
- The lawsuit, filed by shareholder Jeff Mason in New York, claims that Constellation made false statements about its wine sales between April 2024 and January 2025, failing to disclose significant negative facts.
- Recent actions by Constellation, such as selling off lower-priced wines to focus on premium offerings, have raised suspicions of inflating performance in the wine category prior to the sale.
Insight:
Constellation’s decision to streamline its wine portfolio reflects changing consumer preferences, with many opting for ready-to-drink options outside of traditional wine and beer. The company anticipates a sales decrease of 17% to 20% in its wine and spirits segment for the current fiscal year.
The lawsuit accuses Constellation of misleading investors with optimistic earnings statements prior to the sale, particularly regarding the growth potential of its wine holdings. CEO Bill Newlands’ comments during an earnings call in April 2024 are cited as examples of misleading information.
In addition, the lawsuit alleges that over $668 million was spent on stock buybacks at artificially inflated prices, benefitting company executives through bonuses and stock options. The plaintiff, Mason, seeks damages and corporate governance changes to empower shareholders.
Constellation has not provided a response to inquiries regarding the lawsuit. The scrutiny on its wine segment comes amidst challenges in its beer business due to President Trump’s tariffs impacting imported brands like Corona and Modelo.
Newlands highlighted concerns about potential economic impacts on Hispanic consumers, a significant portion of Constellation’s customer base, in the company’s recent earnings call.