UPDATE: Constellation Brands Loss Narrows Amid Lower Charges
08 April 2009 - 6:32PM
Dow Jones News
Constellation Brands Inc.'s (STZ) fiscal fourth-quarter loss
narrowed, but the wine maker's results missed Wall Street's
forecasts as sales dropped in Australia and Europe.
On a conference call, the company said the U.S. wine market
continues to grow despite the recession. At the end of March,
Constellation cut its guidance for fiscal 2009, saying that it saw
weaker-than-expected demand during the New Year and Christmas
holiday season in Europe and Australia. The stock was recently down
3.8% to $11.20.
Chief Executive Rob Sands said on a conference call that the
company was looking to offset the pressures of the global economic
slowdown by implementing a worldwide cost reduction program and by
streamlining its distribution network.
The company also said that it has been able to use cash flow and
proceeds from disposing of assets to lower its debt levels.
Constellation Brands has used acquisitions to grow in recent years,
although that appetite for deals also pushed up its debt.
In the fourth quarter, Constellation saw consumers be more
cautious even in alcoholic beverage purchases, but the company said
some of that may have been an overreaction and doesn't expect to
see as much of an impact in fiscal 2010.
"Top line was weaker than we expected, driven by lower branded
wine and beer sales, which in turn lead to lower gross margins,"
said JPMorgan's John Faucher in a research brief.
The winemaker expects lower profits for the fiscal year from its
Crown Imports beer joint venture with Grupo Modelo (GPMCY), but
Constellation said it has no intention of selling its interest in
Crown. The beer business plans to be more aggressive in offering
promotions in the summer months to help volumes.
Constellation also said it has found some reporting issues at
its Australian subsidiary related to the accounting for inventory
and cost of goods sold. The company said that was not material
enough to require any restatement, but that management will report
a material weakness as part of its assessment of internal controls
for fiscal 2009.
The company, which produces Robert Mondavi wines and other
brands, in late March gave a glimpse of cost-cutting plans, which
include eliminating 5% of its global work force of 9,000 people.
Wednesday, the company said it is aiming to save $25 million in the
just-started fiscal year and more than $50 million by the end of
the following year. Constellation expects to take a total of $112
million in charges, with the majority incurred in 2010.
For the quarter ended Feb. 28, the biggest global winemaker by
volume reported a net loss of $406.8 million, or $1.88 a Class A
share, compared with a prior-year net loss of $834.8 million, or
$3.91 a share.
The latest period included $468 million in restructuring costs
and other charges, mostly related to a decline in its U.K. and
Australian businesses. Prior year included $888 million in
restructuring-related and other charges. Excluding items, the
company earned 21 cents a share in the latest quarter.
Net sales, which exclude excise taxes, decreased 17% to $735
million.
Analysts polled by Thomson Reuters most recently were looking
for earnings of 22 cents on revenue of $791 billion.
Branded wine sales, which represent the bulk of its earnings,
fell 4% amid a sharp decline in demand in Europe. Spirits sales
increased 6%, driven by the growth of Svedka vodka brand.
For the just started fiscal year, the company expects per-share
earnings of $1.60 to $1.70.
-By Anjali Cordeiro; Dow Jones Newswires; 201-938-2408;
anjali.cordeiro@dowjones.com
-By Tess Stynes and Katherine E. Wegert, Dow Jones Newswires;
201-938-2473; tess.stynes@dowjones.com