Liquor company Constellation Brands says 2Q profit fell 8 percent as sales fall

Constellation Brands’ 2Q profit falls

ROCHESTER, N.Y. — Constellation Brands Inc. said Wednesday that Americans brought home more wine from supermarkets and convenience stores this summer and took advantage of discounts to trade up to more expensive brands.

The world’s biggest winemaker, and the seller of Robert Mondavi wine and Svedka vodka, said its second-quarter net income fell 8 percent as moderate growth in its domestic wine business was more than offset by slumping profits from its imported beers partnership.

But profits in the June-to-August period were better than expected, and Constellation Brands’ stock rose 4.3 percent.

It was the second-consecutive quarter that the company’s U.S. wine business showed increased sales volume, despite purchases at bars and restaurants, known as “on-premise” in the industry, remaining sluggish, CEO Robert Sands said.

“Obviously the economic recovery has not been particularly robust. Unemployment still remains high,” Sands said in a conference call with analysts. “As long as that remains the case, I think the on-premise is going to be weak for beer, wine and spirits.”

Based in Victor, 20 miles southeast of Rochester, Constellation Brands draws more than 90 percent of its revenue from mostly moderate-priced wines. Among its 100-plus brands are Clos du Bois, Woodbridge by Robert Mondavi, Blackstone and Ravenswood.

Its also operates a wholesale joint venture with Mexican brewer Grupo Modelo SA, importing beers including Corona and Negra Modelo from Mexico, Tsingtao from China and St. Pauli Girl from Germany.

The company said it earned $91.3 million, or 43 cents per share, in the quarter, down from $99.7 million, or 45 cents per share, a year earlier. Revenue fell 2 percent to $863 million, partly because of the sale of its British cider business.

Excluding $17 million in restructuring and other one-time items, the company earned 52 cents per share, beating Wall Street expectations.

Analysts, on average, expected the company to earn 49 cents per share on revenue of $855 million. But they said paying lower taxes than expected boosted its adjusted income by 2 cents per share.

Its shares rose 76 cents to close at $18.52 Wednesday. The stock is trading at the upper end of its 52-week range of $14.60 to $18.87.

Wine sales fell 1 percent to $808 million, but revenue in North America grew 5 percent to $601 million, with volume increases partially offset by higher promotion costs. Wine sales in Europe and Australia fell 14 percent to $207 million.

U.S. consumers “are buying a higher grade of wine but, as you move up the price ladder, you are seeing a reasonable amount of discount,” Chief Financial Officer Bob Ryder told analysts. “Promotion spending is up, but it is working.”

Spirits sales slid 15 percent to $55 million despite double-digit gains for its popular Svedka vodka. In last year’s second quarter, Svedka sales rose about 90 percent.

Operating earnings from Crown Imports, its beer joint venture, fell 9 percent to $131 million. Sales fell 2 percent to $679 million, hurt by lower volumes and higher promotion costs.

Constellation Brands reiterated its profit target for the year.

In recent years, the company has shifted its focus toward higher-priced wines and spirits, selling off some of its lower-price brands after a two-decade acquisition spree. It also has consolidated divisions and cut its work force to 6,000 people from 8,200 in 2008.