Beer, wine dealer sees profit fall 25%

Constellation cites price rise, lower sales

ROCHESTER, N.Y. — Constellation Brands Inc. said Thursday that its thirdquarter profit slumped 25 percent on weaker wine and beer sales in North America, price increases that hurt sales of two popular wine brands and stepped-up promotional costs.

The results narrowly missed Wall Street estimates. Its shares fell 71 cents, or 3.5 percent, to close at $19.73.

The world’s No. 2 winemaker by volume said revenue dropped 27 percent to $700.7 million from $966.4 million largely because it sold the bulk of its Australian and British wine business a year ago.

Its wine and spirits sales in North America fell 4 percent, and beer sales dropped 12 percent. The drop in volume was driven largely by a year-over-year shift in inventory created by a distributor network consolidation that it launched in September 2009.

In addition, price increases on its low-end Arbor Mist and Vendange wines hurt sales and cut into profits along with a spending bump to launch 20 new wines and other alcoholic beverages in 2012, the company said.

On a brighter note, Chief Executive Rob Sands pointed to a long-awaited industry

uptick in wine sales in bars and restaurants in the quarter.

After a sharp drop in wine sales in 2009, volumes have rebounded over the past year as Americans take advantage of more discounts to trade up to higher-priced brands. The “on-premise” category was especially hard-hit and the slowest to recover.

“We’re seeing the onpremise channel up for the first time in a long time ... probably in the 1 to 2 percent range,” Sands said in a conference call with analysts.

“For us, we probably gained [market] share on a dollar perspective and lost share on a volume percentage because we significantly changed the mix of products we’re selling on-premise to more high-end, premium-plus products from the lower end.”

Constellation reported net income of $104.8 million, or 52 cents per share, in the September-to-november quarter, down from $139.3 million, or 65 cents, a year earlier.

Excluding one-time items, Constellation earned 50 cents per share. Wall Street expected 53 cents per share, according to a survey by Factset.

Its wine brands include Robert Mondavi, Clos du Bois, Ravenswood and Ruffino. Through its Crown Imports wholesale business joint venture with Mexican brewer Grupo Modelo SA, it also imports moderately priced beers such as Corona Extra, Tsingtao and St. Pauli Girl.

Based in Victor, N.Y., Constellation said it remains on track to meet its full-year profit goal. In October, it raised its comparable-basis guidance to a range of $2 to $2.10 per share. Analysts expect $2.06 a share and typically exclude one-time items from the estimates.

Constellation has been pruning methodically for five years to solidify its supremacy in higher-margin wines priced from $5 to $20 a bottle and revive profits and revenue in a choppy economy.

A family business with post-world War II roots in the Finger Lakes grape-and-wine country in western New York, Constellation jumped into California’s coveted wine market by netting Franciscan in 1999, Ravenswood in 2001 and Robert Mondavi Corp. in 2004.

Its 21 acquisitions over 21 years ran through 2007 when it bought Fortune Brands’ U.S. wine business, maker of Wild Horse and Clos Du Bois. Then came the cost-cutting.

It divested Almaden, Inglenook and other low-priced wines that generally sell for less than $5 a bottle, paring its 300 brands to 100. It has lowered its debt to below $3 billion from $5.3 billion and cut 5,100 jobs.

Last January, Constellation lost its eight-year status as the world’s No. 1 winemaker when it offloaded 80 percent of a once-promising Australian wine business that had gone awry.

It dropped back to No. 2 in the vintner-by-volume rankings behind longtime leader E. & J. Gallo of Modesto, Calif. But it remains the world’s biggest premium-category winemaker with an estimated 17 percent share of that segment in the United States, ahead of rivals that include Gallo, Treasury Wine Estates, Kendall-jackson and Diageo.