Constellation moves to profit; looks to holidays

By EMILY FREDRIX

posted: 55 DAYS 20 HOURS AGO

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MILWAUKEE -Wine and spirits maker Constellation Brands Inc. said Thursday no matter how consumers limit alcohol purchases this holiday season, it hopes its new distribution system will help squeeze out more profits, continuing the trends of its second quarter.

The world's largest wine maker by volume said Thursday it moved to a profit in the quarter because of lower restructuring costs and the absence of last year's impairment charge, beating analyst estimates.

Shares rose 66 cents, or 4.4 percent, to $15.81 in afternoon trading Thursday.

CEO Robert Sands praised the company's consolidation of its distribution network, which started Sept. 1. He told analysts on a call the move should bode well for the holidays, the largest season for wine sales.

The Victor, N.Y.-based company has been trying to tighten its business as it deals with consumers shying away from buying alcohol in restaurants and bars and trading down to less-expensive brands at home.

Constellation recently announced deals for exclusive distributor rights, which helps drive profits by having distributor teams focused solely on the company's products, especially marketing its more expensive — and profitable — brands.

So far, about half of the company's total U.S. wine and spirits volume has been consolidated, and in the next year, that number will jump to two-thirds, Sands said.

"What we are focused on is making sure that both our U.S. wine sales force, and our distributor sales force are completely aligned so they can take full advantage and make sure that our products are in the right place, and at the right price for that Christmas season," he told analysts on a conference call.

The company earned $99.7 million, or 45 cents per share in its second quarter, compared with a loss of $22.7 million, or 11 cents per share, a year earlier.

Prior-year results included a $21.8 million impairment charge and $35.5 million of restructuring costs. Those restructuring costs dropped to $3.2 million during the current quarter.

Analysts polled by Thomson Reuters, whose estimates typically exclude one-time items, expected a profit of 41 cents per share.

Sales slipped 8 percent to $876.8 million, partly because of the sale of Constellation's value spirits business and the stronger dollar, which drags down revenue once it is converted back to U.S. dollars. The performance still topped Wall Street's $834.2 million estimate.

Branded wine sales dipped 4 percent to $752.4 million as shoppers traded down to less-expensive products.

Beer sales from the company's Crown Imports joint venture fell 5 percent to $693 million. Constellation said it hopes to boost its results with the introduction of 24 oz. cans of Corona Extra and Corona Light into convenience stores this month and by doing more advertising during football and baseball playoffs.

Constellation maintained its guidance for full-year net income of $1.60 to $1.70 per share, a range that includes analysts' estimate of $1.63 per share.

The company said it is lowering its debt, which fell by more than $155 million during the quarter and is down more than $1 billion since the start of fiscal 2009 to $5.92 billion.

Deutsche Bank-North America analyst Marc Greenberg said the results improved on previous quarters, but timing issues create uncertainty for the rest of the year.

Greenberg told clients in a note wine sales were better than he expected in the quarter as new distributors loaded up on inventory. But he said that means distributors may limit their purchases later this year, "creating some uncertainty in back-half trends."

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AP Retail Writer Michelle Chapman contributed to this report from New York.

(This version CORRECTS the extended headline to indicate the second quarter was profitable.)

2009-10-01 13:22:16