US: Constellation Brands swings to net loss, sales fall

Wine giant Constellation Brands has swung to a net loss of US$301m for its fiscal full-year and has warned that it faces more than $100m in charges over the next year as it looks to cut jobs and restructure the business.

A non-cash impairment charge of US$358m in the fourth quarter was the main reason for Constellation slipping to a net loss for the 12 months to the end of February, the California-based group said today (8 April).

Net profit on a comparable basis for the year rose by 9% to $351m. Operating profit was flat on a reported basis.

Troubled times in Europe, particularly in the UK, saw the group's full-year net sales slip by 3% to $3.65bn. The drop represents a 9% sales decline in Europe and a 3% drop in Australia and New Zealand, which overshadowed an 8% rise in North America.

Constellation CEO and president Rob Sands said that he was pleased with the group's efforts to increase cash flow, cut borrowing and increase its brand portfolio in the face of global recession. But, he said the firm now faces a period of cost cutting and restructuring.

Constellation plans to cut around 5% of its 9,000-strong global workforce as part of a restructuring programme, set to be largely implemented in the next 12 months, the group's fiscal 2010.

The firm also indicated that it intends to "rationalise" some of its facilities, although it did not give further details.

The project is expected to cost $112m to implement, with $106m of this charge coming in fiscal 2010. Once complete, Constellation said that it will save more than $50m annually. Up to $25m in savings are expected by the end of fiscal 2010.

"Constellation is focused on the right strategies during these tough economic times to generate cash, pay down debt and increase return on invested capital," said Sands.

"Given the difficult and uncertain economic conditions, we are cautious with our outlook for fiscal 2010. However, our business strategy remains intact, we have a clear path forward and plan to be prudent in managing the bottom line by focusing on right-sizing our organisation, creating efficiencies and rapidly deleveraging."

Constellation last month boosted its deleveraging effort by completing the sale of its value spirits arm to Sazerac Co for $334m, from which the wine giant expects $210m in after-tax proceeds.

In its earnings outlook, Constellation said that it expects earnings per share on a reported basis to be $0.97 to $1.07 in fiscal 2010, compared to -$1.40 for the year just ended.