Earnings Preview: Constellation Brands

AP News
|
Posted: Jan 05, 2010 3:56 PM

Wine and spirits maker Constellation Brands Inc. reports its results for the fiscal third quarter on Thursday before the market opens. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The world's largest winemaker by volume, Constellation Brands has been cautious about its outlook in the quarter ended Nov. 30 despite some signs of economic recovery and steadying sales of $5-to-$20 wine brands that make up the bulk of its business.

With the recession crimping demand for wines with $20-plus tags, the company is benefiting from a consumer switch to its midlevel brands, which include Clos du Bois, Woodbridge by Robert Mondavi, Blackstone and Ravenswood. But with the unemployment rate high and consumers limiting alcohol purchases, it remains wary about sales expectations.

CEO Rob Sands expressed caution about the company's outlook in the holiday season at the annual shareholders meeting in November.

Based in Victor, 20 miles southeast of Rochester, it sells about 70 wine brands and liquors such as Svedka vodka, Paul Masson brandy and Black Velvet Canadian whiskey. It also imports beers such as Corona and Negra Modelo from Mexico, Tsingtao from China and St. Pauli Girl from Germany.

After a two-decade acquisition spree, the company sold off cheaper "value" brands to focus on the more lucrative premium end of the wine and spirits markets. Over the last year, its work force fell from 8,000 to 6,600 as it ditched wineries and product lines and consolidated its distribution network.

Constellation Brands bought Australian vintner BRL Hardy Ltd. for $1.1 billion in cash and stock in a 2003 deal that made it the world's largest wine business. It jumped further ahead of longtime wine leader E.& J. Gallo Winery of Modesto, Calif., when it bought Robert Mondavi Corp. for $1.3 billion.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters, whose estimates typically exclude one-time items, expect third-quarter profit of 52 cents a share on revenue of $905.3 million. That would be down from 60 cents a share and sales of $988 million in the third quarter of 2008, when its net profit fell 30 percent to $83.5 million, or 55 cents a share.

The company still expects to earn $1.60 to $1.70 a share this fiscal year, which ends in February.

Second-quarter profit and sales figures beat Wall Street's expectations. Helped by lower restructuring charges, it earned $99.7 million even as sales slipped 8 percent to $876.8 million partly because of the sale of its value spirits business.

ANALYST TAKE: Constellation Brands' U.S. wine business will likely come under pressure in the next three to six months because of tepid consumer demand and an escalation in discounts, particularly of wines priced above $5 a bottle, Goldman Sachs analyst Lindsey Drucker Mann said in a client note in December.

STOCK PERFORMANCE: Constellation Brands' shares rose 16 percent in the quarter.

___

On the Net: http://www.cbrands.com