Categorized | Beer, News

Constellation Brands Beats Street But Beer Fizzles

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Net sales off 4 percent, net income down 47 pct

* Reaffirms FY EPS view $1.60-$1.70

* Profits from Modelo JV down 26 pct, concerns about deal

* Constellation shares edge down (Recasts first paragraph with better-than-expected result; adds CEO comment, analyst; updates shares)

NEW YORK- U.S. wine and spirits maker Constellation Brands Inc  reported a better-than- expected quarterly profit on Thursday as it cut costs, but investors remained concerned by the disappointing results of a joint venture with Mexico’s leading brewer.

Constellation’s shares were down 0.6 percent in early afternoon trade.

The company, whose wine brands include Robert Mondavi, Clos du Bois and Ravenswood, said sales of its branded wines and the beers it imports had fallen in North America.

The company’s sales and profit margins have suffered as many consumers seek out lower-priced drinks in the economic downturn.

But Constellation has pruned its portfolio, closed some facilities, cut jobs and consolidated distribution as it aims to reduce its debt load, steps that are beginning to pay off, an analyst said.

“Most of the hard work on the restructuring is likely behind them now,” said UBS analyst Kaumil Gajrawala.

Still, investors appeared wary about the weak sales and profits from its joint venture with Grupo Modelo  to import beers like Corona into the United States.

The company, which also makes Svedka vodka, owns 50 percent of the joint venture, called Crown Imports, and said that net sales from the venture fell 10 percent, with its share of the profits down 26 percent, during the quarter.

“The bad news is Corona is weaker than expected – it’s completely understood that if you sell branded imported beers versus domestics right now, there is a trade down,” said D.A. Davidson & Co analyst Tim Ramey.

Last month, Modelo filed a lawsuit against Constellation in a dispute over their joint venture, sparking investor fears the dispute could hurt a key portion of Constellations’ business.

Constellation Brands Chief Executive Rob Sands said on a conference call that Crown Imports’ slump was easing and forecast full year profits from the venture would be down in the “mid-single digits.”

Net sales fell 4 percent, with some of the sales decline stemming from the divestiture of some of its spirits products, the company said.

The drop in the sales of branded wines in North America were partially offset by a 12 percent surge in Europe.

Constellation said that while sales to grocery stores had stabilized, sales to bars and restaurants remained “challenging.”

Earlier this week, Constellation lost the chief executive of its North American wine business, Jose Fernandez, to brain cancer. The company has said the unit will be led by Jay Wright, its president.

FALLING PROFIT

Constellation’s net income fell 47 percent to $44.1 million, or 20 cents per share, in its fiscal third quarter that ended on Nov. 30, from $83.5 million, or 38 cents per share, a year earlier.

Excluding certain items, such as an impairment charge related to its Ruffino joint venture, Constellation earned 54 cents per share. Analysts had forecast, on average, 52 cents, according to Thomson Reuters I/B/E/S.

The company reaffirmed its earnings forecast for fiscal 2010, ending in February, of $1.60 to $1.70 per share, excluding one-time items.

The company said it had paid off $336 million of debt since the beginning of the fiscal year, allowing it to reduce interest expenses by $64 million.

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Tuesday, October 24, 11:23 am

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