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US: Constellation Brands sees credit rating cut

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Standard & Poor's has lowered its credit rating for Constellation Brands after predicting that there is little prospect for improvement at the wine giant in 2010.

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The ratings agency cut Constellation from 'positive' to 'stable' yesterday (27 May).

"The outlook revision ... reflects our expectations that the company's credit measures will remain near current levels in the near-to-intermediate term and will not improve to levels previously expected to support a higher rating over the outlook period despite reducing debt by about US$600m in fiscal 2010," said Standard & Poor's (S&P) credit analyst Jean Stout.

Stout said that the Mondavi and Hardys wine producer failed to meet S&P expectations for the fourth quarter of its fiscal 2010.

"Moreover, as a result of the company's announced $300m accelerated share repurchase transaction, debt reduction will likely be minimal in fiscal 2011," he said.

S&P added that it expects consumers to continue trading down to cheaper wines "because of lingering weak global economic conditions".

Constellation, the world's largest wine firm, last month announced a swing back to full-year profits, to US$99m, against losses of $301m in the previous year.

However, comparable operating profits fell by 7% and net sales slipped by 8% for the year, during which the group reported a further $103m non-cash impairment charge, primarily related to loss of value of its Australian wine arm.

Group CEO Rob Sands said that wine sales in the US were expected to remain sluggish calendar 2010 and that the firm will continue to focus on cutting costs and reorganising its business.


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