Constellation Brands' 2Q profit climbs

October 6, 2011 - 10:35 AM
Earns Constellation Brands

This Oct. 5, 2011 photo, shows Corona Extra beers, sporting lime wedges, on the bar at Rick's Cafe in Chagrin Falls, Ohio. The maker of Robert Mondavi wine and Svedka vodka said Thursday, Oct. 6, 2011, its second-quarter profit jumped 78 percent to $162.7 million on lower costs and improved wine and spirits sales in North America. (AP Photo/Amy Sancetta)

ROCHESTER, N.Y. (AP) — Wine and spirits maker Constellation Brands Inc. said Thursday its fiscal second-quarter profit jumped 78 percent on price hikes, improved wine and spirits sales in North America, and a drop-off in charges after four years of cost-cutting.

The world's No. 2 vintner, Constellation has been pruning methodically to solidify its supremacy in wines priced from $5 to $20 a bottle and revive profits and revenue in a choppy economy.

Its results in the June-to-August quarter exceeded Wall Street expectations. It raised its full-year guidance, and its shares surged $1.68, or 9 percent, to $20.40 in late morning trading. The stock is trading near the upper end of a 52-week range of $16.42 to $23.19.

Constellation's moderately priced wines and spirits range from Robert Mondavi, Clos du Bois and Ravenswood to Svedka vodka and Black Velvet Canadian whiskey. It also imports beers through a joint venture, including Corona Extra, Tsingtao and St. Pauli Girl.

Its net income climbed to $162.7 million, or 76 cents per share, in the three months ended Aug. 31 from $91.3 million, or 43 cents per share, a year earlier.

Revenue after deducting excise taxes fell 20 percent to $690.2 million from $862.8 million a year ago, largely because it sold the bulk of its Australian and British wine business in January.

Excluding $4 million in restructuring and other one-time items, Constellation earned 77 cents per share. Wall Street expected 65 cents per share, according to a survey by FactSet. A year ago, the company recorded $17 million in one-time charges.

Operating income in its beer business fell 4 percent on higher marketing costs despite a 7 percent rise in sales by its Crown Imports joint venture with Mexican brewer Grupo Modelo.

Its wine and spirits sales in North America rose 5 percent. After a sharp drop in wine sales in 2009, especially in bars and restaurants, industry volumes have rebounded this year as Americans take advantage of more discounts to trade up to higher-priced brands.

Constellation jumped into California's coveted wine market by netting Franciscan in 1999, Turner Road and Ravenswood wineries 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 slashed its debt to $290 billion from $5.3 billion and shrunk its payroll from 9,400 to 4,300.

The Victor, N.Y.-based company raised its full-year guidance by 10 cents to a range of $1.92 to $2.02 per share. Analysts expected $1.97 per share.

This year, 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.