Wine and liquor marketer Constellation Brands 3Q profit falls on weaker US wine sales, items

Constellation Brands 3Q profit falls, shares drop

ROCHESTER, N.Y. — Constellation Brands Inc., which markets Mondavi wine, Svedka vodka and Corona beer, took a sharp hit during the run-up to the holiday season as U.S. consumers traded down to lower-priced wines and sales of imported beers waned.

The world’s largest winemaker, which posted September-to-November results Thursday that narrowly beat Wall Street expectations, told investors it also saw some sales lift toward the end of the quarter as a revamped distribution network falls into place.

“We’re really starting to see some of the positive impact of that late in the third quarter and … into December and the holiday season,” Chief Executive Robert Sands said in a conference call. “We’re pretty optimistic that things are working pretty well at this stage on the wine side.”

Sales fell 4 percent to $987.7 million in the fiscal third quarter ended Nov. 30, down from $1.03 billion a year earlier. But profits slumped 47 percent to $44.1 million, or 20 cents a share, dragged down in part by $81 million in restructuring charges, acquisition-related and other unusual items.

Stung by sluggish sales in bars and restaurants, revenue from its branded wines fell 3 percent in the key North American market.

Beer sales in its Crown Imports wholesale business joint venture with Mexican brewer Grupo Modelo SA fell 10 percent to $499 million and operating profit dropped 26 percent to $91 million. Sales of spirits fell 2 percent, hit by the divestiture of the value spirits business.

“The company’s results were decent given consumer weakness,” said Gimme Credit analyst Kim Noland. She credited its efforts this fiscal year to lower debt by $336 million to $4.1 billion and “initiate a global cost-cutting program appropriate in the current recession.”

Based in Victor, 20 miles southeast of Rochester, the company sells about 70 wine brands and liquors such as Paul Masson brandy and Black Velvet Canadian whiskey. It also imports beers such as 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 to 6,600 from 8,000 as it ditched wineries and product lines and consolidated its distribution network.

Excluding one-time costs, Constellation said it earned 54 cents a share, which was 2 cents a share above the average Wall Street estimates. Analysts surveyed by Thomson Reuters also expected lower net sales of $905.3 billion.

“We’re seeing good progress in a number of areas as we continue to reduce costs, which has helped offset the impact of the consumer shift to lower-margin products in this challenging economic environment,” Chief Financial Officer Bob Ryder said.

Sales of branded wines, which account for the bulk of its revenue, rose 2 percent to $868 million. But operating profit fell $22 million largely because of the drop in North American sales and the revamping of its international business.

The 3 percent drop in North America was offset by a 12 percent sales jump in Europe — largely due to higher volumes of lower priced products — and a 2 percent increase in Australia and New Zealand.

Sands said U.S. sales were hurt by the economic downturn and higher promotional spending in advance of the holidays. He also cited a shift of sales to the second quarter from the third quarter due to a distributor network consolidation launched in September.

So far, about 60 percent of its wine and spirits volume has been consolidated, he said.

The company maintained its forecast for 2010 adjusted earnings of $1.60 to $1.70 per share. Analysts expect full-year profit of $1.65 a share.

Constellation shares fell 22 cents to $15.91 in afternoon trading. The stock has traded in a 52-week range of $10.72 to $17.56.

On the Net:

www.cbrands.com