Insight: Constellation Brands upbeat on prospects, eyes more cost savings
Constellation Brands has said that its global cost savings programme is ahead of expectations and that new distributor contracts in the US will improve sales at its North American wine division.
Constellation Brands' chief financial officer, Bob Ryder, said of the wine giant's global restructuring plan: "Things are right on, if not a little better than we anticipated, from a sales, general and administrative costs perspective."
Speaking at the group's second quarter results conference today (1 October), Ryder said that more than 50% of Constellation's total cost savings in the first half of its fiscal year had come from the disposal of its value spirits business and from reductions in admin and sales costs - particularly job cuts.
The group, which has had an inward focus in fiscal 2010 after years of making acquisitions, today reported a slip in sales but a healthy rise in profits for the first six months of the year.
Constellation announced last Christmas that it would cut around 50 jobs in the UK. Ryder said today that the cuts have played a significant part in returning the firm's UK business to profitability in its fiscal 2010.
He said that the wine giant, which also operates in spirits, beer and cider, will likely "step up" its global cost savings initiative in the second half of the year. He did not give specific details.
In August, Constellation began a "realignment" of its Europe and Australia businesses, although the firm said it was not considering further job cuts.
In North America, Constellation has spent the last few months switching to new distributors, after signing multi-year deals with four distributors across 19 US states.
Group CEO Rob Sands said in today's conference call that the necessary transition period, together with a lack of promotional activity, caused a slip in wine sales in the US.
"If you're in the process of terminating some distributors ... clearly growth was affected during that period," said Sands. "We now have our new network in place, our people are focused, we've got exclusive distributor sales people, we've got more resources being applied and we're quite hopeful that you'll see some of the sales trends turning around."
He said that the US wine market remains "fairly strong", despite tough economic conditions. "If you look at some of the more premium categories, they're up even more," he said, adding that the new distribution deals give the company a greater premium focus.
Commenting on the US wine and spirits market, Sands said that he expects to see "accelerated promotional activity" in wine in the coming months, particularly around Thanksgiving and Christmas. This will be more intense in spirits, where Sand predicts "very heavy promotional activity by large companies" during the holiday season.
On the beer side, Constellation said the US beer market continues to be "disappointing", but added that its Crown Imports business - a joint venture with Mexican brewer Modelo - has reported market share gains.
Sands said the firm is looking to "expand the rollout of Modelo in key marets throughout the US". He said it is "one of the few major super premium brands experiencing double digit growth."
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Anheuser-Busch InBev has said that it remains optimistic of winning its dispute with Grupo Modelo, Mexico's largest brewer....
Wine importer and distributor Winebow has appointed the former CEO of Constellation Brands' international division as its president....
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