FDBusiness.com

Constellation Brands, the international beverage alcohol company, is to construct a new, state-of-the-art brewery to be located in Mexicali, Mexico, which is ideally located near the US state of California, Constellation’s largest beer market. Initially, the brewery will be built to provide 10 million hectoliters of production capacity with the ability to scale to 20 million hectoliters in the future. The first 5 million hectoliters is scheduled to be completed by calendar year-end 2019. The new Mexicali brewery is expected to cost approximately $1.5 billion with completion in four to five years.

“We are investing in infrastructure that will provide long-term flexibility and capacity needed to support the expected future growth of our high-end Mexican beer portfolio,” says Rob Sands, president and chief executive of Constellation Brands. “Our Mexican beer business continues to significantly outperform the US beer market and is exceeding our sales volume and depletion expectations, driven by strong consumer demand. We anticipate these capacity investments will equip us with the production necessary to continue to be a leader in the high-end segment of the US beer market, which has consistently grown in the mid to high single digit range and is expected to continue to grow at these levels into the foreseeable future. We are absolutely committed to satisfying growing consumer demand for our iconic brands, including Corona, Modelo, Pacifico and Victoria, by increasing supply for the US market, and we are pleased to be in a position to continue investing in Mexico and enhancing our operational platform.”

The Mexicali location is ideal given its close proximity to California, providing a new avenue to better service the western US, a fast-growing region for Constellation. The facility will boast similar technological and operational advancements as the company’s brewery in Nava, Mexico, designed to ensure consistency in brewing and production processes and the highest level of product quality between the two facilities.

In addition to the company’s plans to build the Mexicali brewery, the company has plans to further expand the Nava brewery with a 2.5 million hectoliter capacity expansion that will bring production capacity from 25 to 27.5 million hectoliters when completed. The estimated cost of this project is expected to approximate $250 million and to be completed by early calendar year 2018. The company is currently in the process of expanding the Nava brewery from 10 million to 20 million hectoliters by June of calendar 2016 and from 20 to 25 million hectoliters by summer of calendar 2017.

“These investments are expected to generate very high returns, as our beer business has a strong, best-in-class margin profile and a high operating ROIC,” says David Klein, executive vice president and chief financial officer, Constellation Brands. “Even with the capital expenditures associated with these initiatives, our strong projected earnings and operating cash flow growth allow us to remain focused on operating below our targeted 4x leverage range and continue to provide us with significant capital allocation flexibility.”