US: Constellation reports record sales and income

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Constellation Brands has reported record net sales and net income for its full year, despite a tough fourth quarter, in which it was hit by acquisition costs.

Net sales for fiscal 2005 totalled US$4.09 billion, up 15%, driven by growth in the company's branded wine, UK wholesale and beer businesses and, from the end of Decembe last year, the acquisition of The Robert Mondavi Corporation.

Currency contributed 4% of the increase.

Both reported net income of US$276.5m and diluted earnings per share of $2.37 set records, and were up 25% and 15%, respectively, over the prior year.

"We had a monumental year in which we continued to gain momentum and generate true growth, which is growth that produces incremental returns above our cost of capital," said Richard Sands, Constellation Brands chairman and chief executive officer. "Our worldwide team created true growth across our businesses by its adept management of our existing brands, introduction of new products and integration of the key acquisition of Robert Mondavi, as well as the addition of the Ruffino and Effen Vodka brands. Pursuing and capturing true growth is ingrained in our corporate culture and values."
For 2005, Constellation wines net sales totalled US$2.85bn, up 19%, driven by growth in the branded wine and UK wholesale businesses, the acquisition of Robert Mondavi and a 6% favourable impact from currency.

Pro forma Constellation wines net sales for the year, which include US$31m of sales from Hardy for March 2003 and US$43m from Robert Mondavi for January and February 2004, increased 15%, including 7% from currency.
Branded wine net sales increased 18% to reach US$1.83 billion, driven by the acquisition of Robert Mondavi, volume growth, and a 4% benefit from currency. Pro forma branded wine net sales for the year increased 13%, including 4% from currency.
"The investments we made in focus brands during fiscal 2005 contributed significantly to our overall true growth for the year," said Sands. "Our disciplined approach to marketing support for strategic brands helps us to maximize the return for each dollar we invest in a brand. This is a disciplined approach we will continue to take when allocating marketing funds in the future. It makes business sense, and results in true growth for our portfolio."

Annual net sales for beers and spirits reached US$1.24bn, an 8% increase over the prior year.

Beer posted a 7% increase in net sales for the year with the majority of the gain coming from a price increase in the Mexican portfolio, as well as slight volume gains in St. Pauli Girl and Tsingtao.

"Our Mexican beer portfolio has maintained market share despite the price increase initiated last year. We believe that the Modelo portfolio has maintained its inherent momentum with the consumer and will continue to grow and gain share," stated Sands. "Our beer business performed in line with expectations following the price increase and we're optimistic about the future growth potential and strength of our imported beer portfolio."

Branded spirits net sales for 2005 grew 5%, while production services grew 58%, resulting in total spirits growth of 10%. Black Velvet Canadian Whisky, the 99 line, Barton Vodka and the di Amore line were among the brands that contributed to solid branded spirits sales, the company said.

"Our spirits business has been buoyed by a general movement back to spirits and mixed drinks," explained Sands. "We continue to innovate and move our overall portfolio toward higher margin premium products such as the 99 family, Ridgemont Reserve 1792 and Effen Vodka brands from our new joint venture." Operating income for Constellation beers and spirits totaled $276.1m, an increase of nine percent over the prior year, while operating margins increased slightly.

"Our acquisition of Robert Mondavi is already generating true growth by exceeding our expectations," said Sands. "We're seeing encouraging interest in the brand throughout Europe, where the Robert Mondavi portfolio will be part of Constellation Europe's fine wine business. We're also seeing renewed momentum in the US, although we only owned the portfolio for a portion of the fourth quarter."

However, although reported net sales for the fourth quarter of fiscal 2005 totalled US$1.04bn, an 18% increase versus the prior year quarter, reported net income and diluted earnings per share totalled US$47.6m and US$0.40 per share, a decrease of 24% and 27%, respectively, from the prior year.

Fourth quarter results include acquisition-related integration costs, restructuring and related charges and net unusual costs or gains.

Net income and diluted earnings per share on a comparable basis, which exclude net costs of US$25.5m after tax, or US$0.22 per share for the fourth quarter of fiscal 2005, and a net gain of US$1.0m, or US$0.01 per share for the fourth quarter of fiscal 2004, increased 18% to US$73.2m and 15% to US$0.62 per share, respectively, for the fourth quarter of fiscal 2005.

"Our balanced portfolio approach, combined with geographic diversity, helped us to generate consistent growth performance throughout the year," explained Sands. "When branded wine was a little below trend, beer performed well during the first half of the year, and conversely, branded wine performed well in the back half of the year when beer faced difficult comparisons. Spirits, wholesale and production services consistently exceeded expectations. Our portfolio growth, combined with new product introductions and strategic acquisitions, give us the momentum to continue on the growth course we've set for ourselves moving forward, which we are confident will generate incremental true growth and shareholder value in the future."

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