Insight - Crown Imports not under threat - Constellation Brands

By | 7 January 2010

  • Crown Imports will continue - CEO
  • Debt reduction progressing well
  • US wine market picking up

A lawsuit filed by Grupo Modelo against Constellation Brands does not jeopardise the future of the two firms' Crown Imports joint venture, Constellation president and CEO Rob Sands has said.

The lawsuit will have "no impact whatsoever" on the Crown Imports contract, Sands told analysts during Constellation Brands' third quarter results conference call today (7 January).

In December, Constellation vowed to defend itself after Modelo confirmed that it had filed a lawsuit to recoup marketing funds from  its joint venture partner. Crown imports and sells Modelo's Corona beer brand in the US.

The move led some analysts to question the viability of the venture, which is set to run until at least the end of 2016.

Sands said the sum in question was financially "immaterial" and added: "We have certainly no reason to believe or expect that anything different will occur other than the business will continue to be operated and generate the kind of results that it has done historically."

He said that neither firm could ignore the dispute, but: "Both partners recognise that we have to get along and we have to work togther to maximise its success."

Constellation today reported a 4% fall in net sales for its fiscal third quarter to the end of November, with one-off charges dragging quarterly profits down 47% against the same period of last year. Nine-month profits rose to $150m, from $105m in the prior year.

Fiscal 2010 has been a year of consolidation and rebuilding for Constellation.

Sands hailed the California-based wine group's progress on reducing debt during the year. Net debt has fallen by $336m since the start of the fiscal year, to $4.1bn at the end of November.

The group aims to reduce its net debt to ebitda ratio from a current 4.2 to sub-4 by the end of current fiscal year, helped on by its deal to sell Gaymer Cider Co in the UK to C&C Group. Lower capital expenditure is expected to boost cashflow, allowing the firm to hit the high end of its target range of $230m to $270m for the year.

At the same time, Sands pointed to improving trends on the US wine and beer markets, as new distribution arrangements and promotions began "kicking in" in the fourth quarter.

He said that the firm is "optimistic that things are working pretty well on the wine side". In imported beer, there has been "stabilisation" in the on-premise, although convenience - the biggest sales channel - remains "highly challenging".

Crown Imports is outperforming the imported beers category, Sands said, but he conceded that sales and profits are expected to be down for the year.

Crown's net sales fell by 10% in the third quarter, to $498.8m, with operating profits down 26% to $91.4m.

There was no comment on Constellation's talks with Australian Vintage over a possible merger of Australian and UK operations.

Sectors: Beer & cider, Spirits, Wine

Companies: Constellation, Modelo, C&C Group

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