Constellation Q1 Profit Slides; Adj. EPS Beats Estimate; Affirms FY10 EPS View - Update

(RTTNews) - Wine company Constellation Brands, Inc. (STZ, STZ-B) Wednesday reported a sharp decline in its profit for the first quarter of fiscal 2010, hurt by restructuring as well as acquisition-related integration costs and a 15% drop in its net sales. On a comparable basis, the company's earnings were lower than last year, but came in above analysts' estimate by a penny. Going ahead, Victor, New York-based Constellation confirmed its earnings per share outlook for fiscal 2010.

The company's first-quarter net income was $6.5 million, compared with $44.6 million last year. Earnings per Class A and Class B common stock were $0.03, compared to $0.20 and $0.19, respectively in the prior-year quarter.

The company's pre-tax restructuring charges, acquisition-related integration costs and unusual items totaled $40 million in the quarter, lower than $41 million last year. On a comparable basis, first-quarter net income was $73 million, or $0.33 per share, down from $73.6 million, or $0.34 per share, in the same quarter a year earlier.

On average, eight analysts polled by Thomson Reuters expected the company to report earnings of $0.32 per share for the quarter. Analysts' estimates typically exclude one-time items.

Constellation's quarterly net sales declined 15% to $791.6 million from $931.8 million a year ago. Seven analysts had a consensus revenue estimate of $780.86 million for the quarter. The company attributed lower sales to the impact of year-over-year currency exchange rate fluctuations and the divestitures of the value spirits business, spirits contract production services and certain Pacific Northwest wine brands. On constant currency terms, the sale decline was 5%. Organic net sales increased 1% on a constant currency basis.

For the sequentially preceding fourth quarter, the company reported a net loss of $406.8 million, or $1.88 per Class A share and $1.71 per Class B share. Total sales were $964.9 million for the fourth quarter.

In the first quarter, the company's branded wine net sales reached $688 million, down 10% from the prior-year quarter. Organic net sales on a constant currency basis increased 1%, which includes a 1% drop for North America, a 6% rise for Europe, and a 7% increase for Australia/New Zealand. Net sales for Europe benefited from timing impacts related to the U.K duty increase, the company noted.

Further, total spirits net sales slid 43% in the first quarter to $60 million. Organic net sales were up 13%, led by a 33% gain for SVEDKA Vodka.

Constellation's equity earnings from its 50% interest in the Crown Imports joint venture totaled $63 million, a decrease of 10% from the year-ago first quarter. Crown Imports generated net sales of $636 million in the quarter, down 5% year-over-year.

Among others in the sector, Brown-Forman Corp. (BF-B, BF-A), on June 10 reported a 19% year-over-year drop in its fourth-quarter profit, hurt by a 12% decline in its quarterly sales. The Louisville, Kentucky-based company, one of the largest spirits and wine companies and among the top 10 largest global spirits companies, reported net income of $79.6 million, or $0.53 per share for the quarter, compared to $99.1 million or $0.65 per share last year. Net sales dropped to $683.3 million from $772.3 million in the same quarter of fiscal 2008.

In early May, Diageo Plc (DEO, DGE.L) reported 11% growth in its third-quarter sales, positively affected by the impact of exchange rates movements since the comparable period. However, on an organic basis, the company's quarterly sales decreased 7%, mainly hurt by the planned stock reductions in the company's US spirits and wine distributors.

Moving forward, Constellation Brands said that the macroeconomic environment remains challenging. For fiscal 2010, the company continues to expect earnings per share on a reported basis in the range of $0.97 - $1.07. Comparable basis earnings per share are still expected to be between $1.60 and $1.70. Analysts expect the company to report earnings of $1.62 per share for fiscal 2010, on revenues of $3.40 billion. For fiscal 2009, the company's reported loss per share was $1.40 and comparable earnings per share were $1.60.

"We are striving to better align our businesses in the U.K. and Australia to provide opportunity for increased efficiencies and cost savings, which are among our top priorities during these tumultuous times," Rob Sands, president and chief executive officer of Constellation Brands said.

STZ is trading at $14.09, up $1.41, on a volume of 2.33 million shares.

STZ-B rose $1.28 and is trading at $13.90, on a volume of 600 shares.

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