Bottles of Constellation Brands Inc. beer products, circa 2010. (Photo: AP Photo/Matt Rourke)
On Tuesday, alcohol conglomerate Constellation Brands was hit with a class action suit alleging that it misled investors in a bid to revive its ailing wine and spirits division. The American company is best known for Modelo Beer and other industry-leading beer brands including Corona and Pacifico.
Plaintiff Macaria Meza alleges that the deception began last April. In an earnings call with investors, Constellation Brands announced that it had been facing "headwinds" in its wine and spirits division, which includes brands like High West whiskey and Casa Noble tequila. According to the suit, the company reassured investors that it had identified immediate actions to overcome the slump. CEO Bill Newlands was quoted saying that Constellation was "confident in our ability to continue to create shareholder value and deliver on our commitments."
The company doubled down on the sentiment in December, when CFO Garth Hankinson allegedly told investors that its wine and spirits initiatives were starting to "pay off." Per the suit, Hankinson told investors that he expected an uptick in sales thanks to holiday gifting and a renewed focus on vintage releases.
Lawyers representing Meza claim that these statements were knowingly false.
On Jan. 10, Constellation announced a decline in organic net sales and operating income over the past quarter. The announcement — described in the suit as a "revelation" — accompanied updated projections that pegged the company's net sales and income declines at 8% and 19%, respectively.
According to the suit, Constellation's stock price dropped 17% by the end of the day. It has since continued to lose another 5% in value.
Meza claims that the company acted with "actual knowledge" of wrongdoing as it continued to reassure investors over the period of nearly a year. The proposed lawsuit intends to reclaim damages for anyone who bought Constellation stock between April 11 and Jan. 8. In addition to Constellation, CEO Bill Newlands and CFO Garth Hankinson are named as individual defendants.
"Defendants made materially false and misleading statements and engaged in a scheme to deceive the market and a course of conduct that artificially inflated the price of Constellation’s common stock and operated as a fraud or deceit," the suit claims.
The class action bears an uncanny similarity to another filed against whiskey giant MGP in December. The distiller, responsible for myriad brands including Remus Bourbon, Penelope Bourbon and Rossville Union, was accused of covering up a "breathtaking" oversupply issue that left investors in a rut once the truth came to light.
Both suits allude to an industry-wide collapse in the spirits market that reared its ugly head in 2023 and 2024. The causes of this continuing trend have been variously attributed to trade tensions, inflation, declining demand among younger consumers and the aftershocks of the COVID-19 pandemic.
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