US: Constellation to reduce Australia presence

By | 7 August 2008

Constellation Brands is looking to sell some of its wine assets in Australia.

The US-based company confirmed yesterday (6 August) that it will divest certain assets at Constellation Wines Australia and will implement changes to its wine portfolio and production footprint in the country. The announcement follows the conclusion of a review of its Australian business.

Last month, Constellation reported a lift in diluted earnings per share for its first quarter, to US$0.20 against $0.13 per share in the corresponding quarter a year earlier. Branded wine organic net sales on a constant currency basis in Australia/New Zealand decreased, however, by 3% in the period.

The initiative involves the planned sale of three of ten production facilities, in addition to the sale of more than 20 vineyard properties; consolidation of bottling operations; portfolio streamlining and rationalisation of more than 30% of the company's Australian SKUs. "The company's Australian employment will be impacted by more than 20%, or 350 positions, primarily associated with assets expected to be sold," the company said.

"This assessment of our Australian business has led to the development and implementation of an action plan that we believe will allow us to better position this business for success around the world," said Constellation's president and CEO, Rob Sands. "We will continue to provide consumers with an excellent array of the highest quality, premium Australian wine brands, along with many other high-quality Australian products that are Constellation Wines Australia hallmarks."

Bob Ryder, Constellation's CFO, added: "We are eliminating less profitable SKUs, focusing on brand-building and increasing pricing to restore appropriate levels of profitability. We are also monetising certain elements of our production footprint and increasing efficiencies. These actions are designed to reduce our cost base and improve our margins. We expect to see sales and profits grow, and ROIC improve.

"In addition, we expect this initiative to generate positive cash, with proceeds from asset sales projected to exceed the cash cost of this restructuring by more than $50m."

The company said it expects to incur one-time cash costs of about $45m and net one-time non-cash costs of approximately $95m, for a total of around $140m in net one-time costs.

Constellation subsequently updated its earnings outlook for the current fiscal year, to between $0.86 and $0.94 earnings per share on a reported basis.

Sectors: Wine

Companies: Constellation

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