US: Impairment charge hammers Constellation results

Constellation Brands has posted a marked loss for its fiscal year.

The US-based company said today that net loss for the 12 months to the end of February hit US$610m, compared to a net profit of $321m. Operating profit fell by over a third, from $545m to a loss of $352m.

The net loss was driven by an estimated $822m of impairment charges primarily related to goodwill and intangible assets associated with the company's Australia and UK businesses, and a $52m deferred tax asset valuation allowance. "These are non-cash, non-recurring charges to earnings and do not impact the company's free cash flow, debt covenants or future operations," said Bob Ryder, Constellation's CFO.

Consolidated sales were down by 28% in the year, to $3.77bn, although branded wine sales inched up by 6% to $3.02bn. The sales dip primarily reflects the impact of reporting the Crown Imports and Matthew Clark wholesale business joint ventures under the equity method and US distributor wine inventory reduction. This was partially offset, however, by the benefits of the Vincor, Svedka and Fortune Brands US premium wine business acquisitions and favourable foreign currency. Organic net sales increased 1% on a constant currency basis.

Operating results in Australia and the UK were impacted by pricing pressures driven by the strength of large grocery retailers, Australian wine over-supply and UK duty increases, the company noted.

"The UK is one of the world's largest import wine markets and wine consumption trends remain robust, while Australia is one of the largest and most progressive producers and exporters of high quality New World Wines," said Constellation's president and CEO, Rob Sands.

"We believe in the long-term value of both of these businesses, and are confident we are taking the right measures to improve operating efficiencies and our competitive position in these strategically important markets. We plan to improve operating results in fiscal 2009 and beyond."

Spirits sales at the company rose markedly, meanwhile, by 26% year-on-year to $414m, thanks in part to the purchase of Svedka vodka in March last year.

Looking forward to fiscal 2009, the company said it expects diluted EPS on a reported basis to come in between $1.46 and $1,54, and on a comparable basis between $1.68 and $1.76. "The expected improvement in comparable earnings for fiscal 2009 includes solid underlying growth of our North America branded wine business and the Crown Imports joint venture, the benefit of completing the reduction in US distributor inventories during fiscal 2008 and anticipated performance improvement for the company's UK and Australia branded wine businesses," Sands concluded.