Constellation Confusion

Constellation Brands (STZ) released its third quarter report today for the period ending November 30, 2019, and it did not disclose Ballast Point's sale price. The sale occurred in December 2019, after the close of the quarter and it is still pending, which is likely STZ's excuse for not listing the sale price.

The 10-Q did list beer related Assets Held for Sale at $42.1 million, as of November 30, 2019, which appears to consist primarily of Ballast Point. STZ wrote down Ballast Point by $41.3 million during its third quarter to a value of $40 million. By my calculation, that is a $960 million cumulative write down for Ballast Point from its $1 billion purchase price! The following is from STZ's 10-Q (bold is my emphasis):

For the third quarter of fiscal 2020, in connection with the Ballast Point Transaction, long-lived assets held for sale with a carrying value of $81.3 million were written down to their estimated fair value of $40.0 million, less costs to sell. As a result, a loss of $50.0 million, inclusive of costs to sell and other losses was included in impairment of assets held for sale. These assets consisted primarily of intangible assets and certain production and warehouse assets which had satisfied the conditions necessary to be classified as held for sale. Our estimate of fair value was determined based on the expected proceeds from the Ballast Point Transaction as of November 30, 2019. Ballast Point is a component of the Beer segment and was included in our beer reporting unit. Accordingly, goodwill was allocated to the Ballast Point assets held for sale based on the relative fair value of the business being sold compared to the relative fair value of the reporting unit. Goodwill not allocated to assets held for sale remains in the beer reporting unit. 

I read a number of financial disclosures as part of my day job. There is no reason to prevent STZ from disclosing Ballast Point's pending contract sale price. Embarrassment is not an excuse. Instead of listing a sales price, STZ decided to obscure Ballast Point's valuation with write downs, impairments, paper losses related to the write downs, and goodwill adjustments. I suspect STZ will disclosure the actual price for which it sold Ballast Point when the sale closes in 2020, but look for it buried in a footnote, wrapped in complex accounting jargon.

Not related to Ballast Point, but more to the warped corporate mind set of Big Beverage, STZ's 10-Q states that it is investing in hard seltzer and cannabis. On trend for sure, just like craft beer five years ago. Look for STZ to be dumping its hard seltzer and pot businesses in four years. Drink Local.