US: Tough times continue for Constellation Brands in Q1

By | 1 July 2009

Constellation Brands has posted a marked fall in net sales and profits for the first quarter of its current fiscal year.

The US-based wine giant said today (1 July) that reported operating profit for the three months to the end of May came in 8% down on the corresponding period a year earlier at US$83.1m, on the back of a 15% slide in sales to $791.6m.

Net profits slid to $7m, down from $44.6m for the previous year, on a reported basis.

On a comparable basis, operating profits dipped by 6% to $123m. Sales were the same comparably as they were on a reported basis.

Sales in Europe were the main drag on the company's performance in the period, coming in 21% down on Q1 last year, at $144.5m. In North America, sales were down by 12% at $572.2m, while in Australia and New Zealand sales fell by 23% to $74.9m.

Constellation CEO, Rob Sands, said that the performance was "in-line with our expectations".

"To strengthen our position as an industry leader, especially in this challenging economy, we took steps over the past 18 months to shift the focus of our strategy to building must-have brands that return the greatest profits and that represent good value for consumers," Sands said. "We are already seeing the benefits from this strategy as brands such as Woodbridge by Robert Mondavi, Nobilo, Clos du Bois, Kim Crawford and SVEDKA continue to perform well.

"During the quarter, we also made progress on our global cost reduction initiative which was implemented to mitigate the negative impacts of the turbulent global economy and to create efficiencies to drive long-term sustainable growth."

By category, Constellation saw branded wine sales fall by 10%. While spirits sales decreased by 43% in the quarter to $60m, the company highlighted the divestment of its "value" spirits business earlier this year as being the main contributor to this performance.

Constellation's operating profits from its 50% stake in Crown Imports, which handles Grup Modelo's beer brands in the US, totalled $126m, a decrease of 9% year-on-year. Net sales at the unit were also down, by 5% to $636m, as the on-trade and convenience channels continued to be "difficult".

Going forward, the company re-iterated its full-year diluted EPS guidance of between $0.97 and $1.07 on a reported basis.

"The macroeconomic environment remains challenging but we continue to focus on the right strategies to generate cash, reduce borrowings, increase return on invested capital, and improve the bottom line," Sands continued. "We are striving to better align our businesses in the UK and Australia to provide opportunity for increased efficiencies and cost savings, which are among our top priorities during these tumultuous times."

Sectors: Beer & cider, Spirits, Wine

Companies: Constellation, Modelo

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