Constellation’s Profit Falls on Wine-Asset Sales
Source: BloombergÂ
Constellation’s Profit Falls on Wine-Asset Sales, Restructuring
By Mary Jane Credeur and Jennifer Sudick
Oct. 5 (Bloomberg) — Constellation Brands Inc., the world’s largest winemaker, said second-quarter profit fell because of costs to sell certain overseas wine assets and consolidate production.
Net income declined to $68.4 million, or 28 cents a share, from $82.4 million, or 34 cents, a year earlier, the Fairport, New York-based company said today in a statement on PR Newswire. Sales rose to $1.42 billion from $1.19 billion on demand for wines such as Twin Fin and imported Corona beer.
Chief Executive Officer Richard Sands is trying to consolidate Constellation’s wine operations in Europe and Australia to cut costs after having made at least nine acquisitions since 2000. The company is also integrating its $1.1 billion purchase of Vincor International Inc., which gave it higher-priced wines such as Toasted Head and Inniskillin.
“Part of the essence of extracting value from these acquisitions is going after these costs as soon as possible,” said Matthew Kaufler, who helps manage $2.5 billion including Constellation shares at Clover Capital Management in Rochester, New York.
Shares of Constellation rose 28 cents to $29.08 yesterday in New York Stock Exchange trading. The stock has risen 11 percent this year.
Morgan Stanley analyst Bill Pecoriello estimated a profit of 42 cents a share, excluding the one-time costs. He is top- ranked by Institutional Investor and rates the shares “equal weight.”
Analysts’ Estimates
The average estimate of 13 analysts surveyed by Thomson Financial was 43 cents. Thomson doesn’t disclose the details behind its forecasts.
Constellation said in August it would record one-time costs of $42 million in the second quarter for selling wine assets in the U.K. and Australia, consolidating certain operations, firing workers and buying out grape-supply and processing contracts. The expenses will total $60 million over three years, the company said.
These changes and the addition of a new distribution center and bottling operations in the U.K. may reduce costs by $5 million in fiscal 2008 and by more than $15 million each year following, the company said.
Expansion Plans
Constellation completed its $1.1 billion acquisition of Canada’s Vincor in June, one of least nine purchases since 2000 as the company seeks to gain shelf space and bargaining clout with distributors.
Constellation in July formed a new joint venture with Grupo Modelo SA to import Corona and Modelo’s other beer brands such as Pacifico and Negra Modelo to the U.S.
The agreement replaces a distribution system divided between Constellation on the West Coast and San Antonio-based The Gambrinus Company in the East. Modelo’s volume in the U.S. was 150 million cases last year.
The expanded Modelo rights could add $1.4 billion in annual revenue for Constellation, D.A. Davidson & Co. analyst Tim Ramey said in a June 26 research note.
Constellation is also taking advantage of rising demand for other import brews such as St. Pauli Girl and Tsingtao.
Sands, 55, has increased promotions on mid-priced wines including 3 Blind Moose and Twin Fin, which cost about $10 per bottle.
He said in June that Constellation’s biggest growth will come from these mid- and higher-priced brands such as Estancia, which costs $15 or more per bottle. This marks a shift from concentrating on its so-called popular wines like Arbor Mist that cost $7 or less per bottle, Sands said.
Among 12 analysts following Constellation, according to Bloomberg data, six rate its shares “buy” and six rate it “hold.”
To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net ; Jennifer Sudick in New York at jsudick@bloomberg.net .
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