Seller of Mondavi, Svedka and Corona says 1Q profit rose sevenfol, brightens its outlook

Constellation Brands’ Q1 profit surges

VICTOR, N.Y. — The world’s biggest winemaker, Constellation Brands Inc., said Thursday that its first-quarter net income surged because it had largely finished an expensive restructuring process.

But its revenue — more than 90 percent of which comes from moderate-price wines — slipped less than 1 percent and volume fell about 1 percent as consumers keep a tight rein on spending in bars and restaurants.

The seller of Mondavi wine, Svedka vodka and Corona beer also announced a $300 million stock buyback and boosted its tepid forecast for the year by 10 cents a share.

For the three months that ended May 31, Constellation earned $49.1 million, or 22 cents per share. In the same period last year, when it was dragged down by $40 million in restructuring charges and a tax rate almost double what it paid in this year’s first quarter, it earned $6.5 million, or 3 cents per share. Restructuring cost Constellation $7 million in this year’s first quarter.

CEO Rob Sands also said Constellation’s domestic wine sales in bars and restaurants have fared far better than the industry’s overall during the past year. He predicted renewed growth later this year.

“I’d say throughout the year, we’ll see it go from negative to flat and then, hopefully, we’ll see it start upticking sometime before the end of calendar year 2010,” Sands said in a conference call with analysts.

Constellation’s revenue was $787.5 million.

Excluding restructuring and other one-time items, Constellation’s net income climbed to 38 cents a share, beating Wall Street expectations. Analysts said paying lower taxes than expected boosted Constellation’s adjusted net income by 5 cents per share.

Analysts polled by Thomson Reuters, whose estimates typically exclude one-time items, expected the company to earn 35 cents a share. But they expected higher revenue of $798.5 million.

Constellation’s shares fell 3 cents to close Thursday at $15.62. The stock is trading near the middle of its 52-week range of $12.25 to $18.87.

For the 2011 fiscal year, which began March 1, the company now expects to earn $1.63 to $1.78 per share, up from a lackluster forecast of $1.53 to $1.68 it made three months ago. The company said the increase reflects the benefit it expects from accelerating its share buyback program.

Wine sales fell 5 percent on a constant-currency basis to $729 million. In North America, they decreased 2 percent to $532 million.

Spirits sales fell 3 percent to $58 million, hit by the loss of revenue from selling its lowest-end liquor brands, even as Svedka vodka sales jumped 40 percent.

Beer sales in its joint venture with Mexican brewer Grupo Modelo SA fell 3 percent to $622 million. The venture’s operating income, hurt by lower volume and marketing costs, dropped 14 percent to $109 million.

Constellation Brands has shifted its focus toward higher-price wines and spirits in recent years, selling off some of its lower-price brands after a two-decade acquisition spree.

It also has sold off unprofitable brands, consolidated divisions and cut its work force to 6,000 people from 8,200 in 2008.

Based in Victor, N.Y., 20 miles southeast of Rochester, the company offers more than 70 wine brands including Clos du Bois, Woodbridge by Robert Mondavi, Blackstone and Ravenswood.

It also makes Paul Masson brandy and Black Velvet Canadian whiskey and imports beers such as Corona and Negra Modelo from Mexico, Tsingtao from China and St. Pauli Girl from Germany.