In the Spotlight – Constellation Brands
The news that Constellation Brands last week posted a huge slide in second quarter earnings garnered a mixed reaction amongst the press and analyst community, reflecting some of the contrasting messages that came out of the group's financials.
Many of the headlines that accompanied the story focused on the fact that the wine, beer and spirits company lost nearly US$23m in its fiscal second quarter on the back of charges to reduce the size of its operations in Australia. Despite a rise in sales of 7%, to US$956.5m, the company's stock still fell on the news.
In fact, Constellation ended beating Wall Street estimates for its results. Analysts on average were expecting earnings of 44 cents a share, according to Reuters Estimates, when the company returned 45 cents.
However, this achievement was overshadowed, some felt, on a number of fronts.
"On their face, they are essentially in line with Street estimates," Mark Swartzberg of Stifel Nicolaus said in a note. "But we consider the underlying results a disappointment as the quarter's effective tax rate, 29.1%, created $0.05 of upside versus the 37% previously indicated by the company. Disappointing beer and selected wine results (mostly international) caused comparable EBIT to be nearly 10% below our estimate."
Other reports picked up further on the mixed bag of wine and beer results. Forbes highlighted the problems Constellation was having in the beer category. The magazine pointed out that, although Constellation's sales of vodka and high-end wines jumped, these were overshadowed by a cut in the outlook for its distribution of Mexican beer in the US.
The company's wine division was also not without its weaker performers, with branded wine sales for Australia/New Zealand down 3% in the second quarter, mirroring their decline in the first quarter.
That said, overall branded wine sales rose by 6%, to $782m, driven by premium-plus US brands such as Estancia, Toasted Head and Woodbridge. Indeed, the concern for Constellation will be that a host of strong underlying performances in the business got lost in the seemingly poor headline figures.
The charges on its wine division are a necessary evil and will help refocus the division for the better on higher priced products. As Tim Ramey, an analyst for D.A. Davidson & Co., pointed out in a Reuters' article, most of the company's wines now fall in the $12 to $15 range. Ramey said: "They've moved solidly in the right direction" because wines priced between $10 to $20 wines remain the fastest-growing price point in the wine industry."
Furthermore, overall the company has maintained its full year targets despite the increasingly tricky economic environment. As the Wall Street Journal pointed out, Constellation believes it isn't seeing much evidence that consumers are trading down within product categories, despite the weakening economy. In fact, there may even be an upside to the second half as consumers and retailers adjust to price increases.
Ramey, meanwhile, concurred with the belief that the outlook for Constellation looked positive. "It's true that consumption of wine and spirits really does not decline in poor economic times and sometimes it actually improves," he said.
To say that Ketil Eriksen had to hit the ground running when he became CEO of Absolut six months ago would be an understatement. Overseeing a massive reorganisation and dealing with the effects of the...
The strong growth in the US market for wines and spirits is certain to be checked by the financial crisis. But Chris Losh found wines and spirits companies to be relatively sanguine about the US in sp...
Absolut is to launch a limited edition vodka for the US market to mark the 40th anniversary of the Stonewall Riots....
East African Breweries (EABL) has confirmed that it will cut "several" jobs within the company in the coming weeks....
Beam Global Spirits & Wine has started the dstribution of Russian Standard Vodka in Canada....
Pernod Ricard has completed the sale of three ex-Vin & Sprit brands to Arcus Gruppen, but competition concerns have forced the drinks giant to remove Gronstedt Cognac from the deal and sell to Altia i...
Coors Brewers has launched a Premium Collection of beers, wines, spirits, ciders and soft drinks, aimed at supporting independents in the UK on-trade....
- Will Tequila Learn from Scotch Whisky's Mistakes?
- Comment - Beer - Does 'Craft' Work?
- Solving the diet drinks dilemma in the US
- SABMiller, Meantime Brewing say goodbye to 'craft'
- Comment - How to Target Cognac's Mok Generation?
- Whyte & Mackay takes on Flor de Caña in UK
- Diageo opens Johnnie Walker House in Singapore
- Emperador overhauls Whyte & Mackay labels
- SPI Group US, Canada sales chief departs
- Soaring Prosecco sales good for Champagne
- Global Tequila insights - market forecasts, product innovation and consumer trends research
- Global rum insights - market forecasts, product innovation and consumer trends research
- Global Scotch whisky insights - market forecasts, product innovation and consumer trends research
- Diageo plc (DGE) - Financial and Strategic SWOT Analysis Review
- Beam Suntory Inc. - Strategy and SWOT Report