Constellation Brands faces sluggish fiscal 2011

Constellation Brands faces sluggish fiscal 2011

Constellation Brands faces another year of stripping back costs and reorganising its business.

Synergies, a tighter portfolio of wines and lower administration costs were the main themes of Constellation Brands' full-year results conference call, held on Friday (9 April).

Fiscal 2011, which runs until the end of February next year, will see more inward focus from a wine firm that spent previous years making its name via a swathe of acquisitions, such as Hardys and Robert Mondavi.

The California-based wine giant last week announced a swing back to full-year profits, to US$99m, against losses of $301m in the previous year.

However, comparable operating profits fell by 7% and net sales slipped by 8% for the year. The group also reported a further $103m non-cash impairment charge, primarily related to loss of value of its Australian wine arm.

Bob Ryder, Constellation CFO, told analysts that the firm expects "operating pressures" to continue on the firm's international business. In its results statement, the group highlighted ongoing "uncertainty" in its UK and Australian businesses, particularly after a potential merger deal with Australian Vintage collapsed earlier in the week.

On a constant currency basis, Constellation's wine sales in North America fell by 3% for the year, although grew by 7% in Europe due to higher volume sales of lower priced wines.
Constellation CEO Rob Sands said that the US wine sales will remain sluggish in calendar 2010.

"In 2009, the business was probably flat to up slightly and, in 2010, we're not projecting anything much different than that, again flat to maybe up 1%," said Sands.

He said that the industry is "fundamentally healthy" and that some consumers have continued to trade up on price, despite strong growth from the sub-$5 bottle category last year.

"The good news is consumers are continuing to trade up as a general proposition in wine. The bad news is that's being fuelled by some fairly heavy discounting of more expensive wine, that negatively impacts margins at the higher price point," said Sands.