US: Constellation reports record results

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The US drinks group Constellation Brands reported record financial results for its full year and fourth quarter ended February 28, 2003. Net income for the full year increased 49% to reach US$203m compared to US$136m, as sales growth in fine wine, imported beer, UK wholesale and spirits offset declines in popular and premium wine and UK brands.

Diluted earnings per share were up 41% to reach US$2.19. Net income for the fourth quarter increased 93% to reach US$52m and EPS was up 87% to reach $0.56 versus US$27m and $0.30, respectively.

Richard Sands, chairman and chief executive officer of Constellation, said: "Constellation's results for fiscal 2003 were excellent. We achieved solid beer sales growth, in part from a successful price increase within a strong overall beer pricing environment; generated good wine results by focusing on growth areas and profitability; had steady spirits performance; and grew our UK business.

"Our revenues increased to over US$2.7 billion and we leveraged those sales to generate earnings above the targets we set at the beginning of the year. In addition, we generated US$482m of adjusted EBITDA, US$265m in net cash provided by operating activities and US$165m free cash flow from operations, which we used to reduce our debt."

Sands added: "Having just completed our acquisition of BRL Hardy, Constellation is poised to build upon fiscal 2003 and produce excellent results again in fiscal 2004. Through this strategic acquisition, we have increased our scale, expanded our product breadth while creating the world's leading wine business, and will accelerate our overall sales and earnings growth rates. We believe the prospects for our businesses are tremendous and we intend to leverage all of our growth opportunities."

Imported beer and spirits net sales for the year grew 6% to reach US$1.1 billion and operating income on a comparable basis grew 17% to reach US$218m. Imported beer sales increased 7% primarily due to a price increase on the company's Mexican brands, which took effect during the first quarter of fiscal 2003. Spirits sales were up 3% for the year, on a slight increase in branded sales and growth in bulk sales.

However sales of popular and premium wine were US$749m for the year, compared to US$778m the prior year, a decline of 4%. The company said lower bulk wine and concentrate sales contributed to half of the sales decline.

"The decline in branded sales was primarily volume related as the Company continues to be selective in its promotional activities, focusing instead on growth areas, long-term brand building initiatives and increased profitability. Despite the lower sales, operating profit on a comparable basis declined only slightly and operating margin on a comparable basis improved 40 basis points," Constellation said in a statement.

But fine wine sales increased US$24m, or 18%, to reach $156 million. The increase was due primarily to increases on the Ravenswood and Simi brands.

Constellation on Wednesday completed its acquisition of Australia's BRL Hardy, creating the world's biggest wine producer in terms of sales.

Because of a currency hedge related to the acquisition, the company recorded a gain of US$23m under generally accepted accounting principles. It expects to record a US$2m charge because of the currency hedge in its fiscal first quarter.

Constellation also expects to incur acquisition-related bank-fee charges of about US$9m in fiscal 2004, as well as restructuring costs of US$3m related to the integration of BRL Hardy.

The company said it also would incur a US$6m restructuring charge in fiscal 2004 related to a realignment of its popular- and premium-wine division.

For its fiscal first quarter, Constellation is expecting to record net income of 41 cents to 43 cents a share, and earnings excluding items of 46 cents to 48 cents a share.

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