CEO of Modelo maker Constellation says stock fell on earnings after Canopy losses 'mixed up' investors

Key Points
  • "What I think people may have gotten mixed up in a little bit is some of the accounting treatments around Canopy," Constellation Brands CEO Bill Newlands tells Jim Cramer defending its quarterly report.
  • The stock fell more than 6% off its second quarter earnings.
  • "We had a really strong quarter. When you then add to that that our margins were the best they have ever been in the quarter, we think our beer business, representing 80% of our total profit, had a really, really strong quarter," he says.
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Constellation CEO: Stock fell on earnings after Canopy losses 'mixed up' investors

Constellation Brands CEO Bill Newlands suggested that investors may have been confused about its quarterly report after shares fell more than 6% on Thursday.

The alcoholic beverage company reported weaker-than-expected wine sales and an earnings offset from its stake in Canadian marijuana producer Canopy Growth. Total revenue grew nearly 2% to $2.3 billion, beating expectations, and shareholders took home $2.72 per share.

"What I think people may have gotten mixed up in a little bit is some of the accounting treatments around Canopy," Newlands told Jim Cramer in a "Mad Money" interview. "Let's face it: $757 million is a big number, and that number is how much we're up in our total investment in Canopy since we made the initial investment."

Since the initial investment almost two years ago, Constellation has injected $4 billion into Canopy to take a large stake in the company. The unprofitable Canopy was a $55 million drag on Constellation's earnings, according to Credit Suisse. Canopy lost $3.70 per share in its June quarter and is not projected to turn a profit in the near future, according to FactSet.

Newlands went on to reaffirm his belief that Canopy is in the best position to win in the potential $200 billion industry. He based his "bullish" case on Canopy's ability to understand the regulatory landscape. This summer, Newlands told Cramer that Canopy founder and CEO Bruce Linton was pushed out because a different leader was needed "to take us to the next phase of growth."

Outside of the weed business, Newlands said Modelo sales were up 15% in the second quarter and were the biggest growth driver in the beer segment. The beer business grew 30%, he added.

"We had a really strong quarter. When you then add to that that our margins were the best they have ever been in the quarter, we think our beer business, representing 80% of our total profit, had a really, really strong quarter," Newlands said.

Shares of Constellation are up more than 20% year to date but are down nearly 8% from a year ago. The stock finished Wednesday's session at $194.26 a share.

Newlands added that "this is a great opportunity for people to buy in because we think some people missed the success that we had during the quarter."

WATCH: Cramer interviews Constellation Brands CEO coming of earnings

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Constellation CEO: Stock fell on earnings after Canopy losses 'mixed up' investors

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