Wine and spirits company Constellation Brands Inc. (STZ, STZ-B) Wednesday announced the completion of the sale of its value spirits business to Sazerac Co., Inc. for $334 million, subject to post-closing adjustments. The company also trimmed its fiscal 2009 earnings outlook reflecting challenging global economic environment, particularly the accelerated deterioration in its U.K. and Australian businesses during the fourth quarter.
Constellation Brands said it has received cash proceeds of $274 million and a note receivable for $60 million in connection with the sale of the value spirits business. Net after-tax cash proceeds from the transaction are approximately $210 million, which will be used to further reduce the company's borrowings in fiscal 2010.
The divestment includes Constellation Brands' more than 40 brands including Barton, Skol, Mr. Boston, Fleischmann's, the 99 schnapps line, the di Amore line, Chi-Chi's pre-mixed cocktail line, and Montezuma Tequila, in addition to numerous other brands representing over 600 stock keeping units or SKUs.
Among the spirits brands that the company is retaining are SVEDKA Vodka, Black Velvet Canadian Whisky and Paul Masson Grande Amber Brandy. The company will consolidate the retained premium spirits business into its North American wine operations.
The company also revised down its fiscal 2009 comparable basis earnings per share estimate to $1.60 to $1.62, from its previous estimate of $1.68 to $1.72. The comparable basis outlook excludes one-time charges.
On a reported basis, the company now expects a loss per share in the range of $1.26 - $1.28 for the year. This outlook reflects estimated after-tax charges of $430 million in the fourth quarter, primarily related to the non-cash impairments of certain goodwill, intangible assets and equity method investments associated with the company's international businesses. The company's previous outlook was for earnings per share between $0.45 and $0.49 on a reported basis.
Meanwhile, analysts polled by Thomson Reuters expect the company to report earnings of $1.69 per share for fiscal 2009. Analysts' estimates typically exclude special items.
Commenting on the outlook revision, Rob Sands, president and chief executive officer of Constellation Brands, stated, We experienced weaker than expected demand in our European and Australian businesses during the Christmas and New Year holiday. The most significant impact was felt in the U.K., where the economy weakened during the critical selling season and retail competition intensified, Sands noted.
According to him, the company has already begun to take actions in the U.K. to align the cost structure with the realities of the marketplace. Further, the company believes it is appropriate to implement additional cost reductions across its global businesses, Although not finalized, these initiatives are currently expected to result in the elimination of approximately five percent of our global workforce, Sands noted.
The company is expected to announce additional details of the restructuring during its earnings announcement scheduled for April 8.
In North America, the wine industry continues to grow and we continue to see consumers trading up albeit at lower rates as compared to its peak. The company's U.S. spirits business continues to experience strong growth rates driven by sales of SVEDKA Vodka. Increased promotional activities in the Crown imported beer business are expected to offset the impact of the recession in some of our key markets, Sands added.
Additionally, Constellation Brands expects that the challenging macro-economic operating environment will continue in fiscal 2010. The company estimates full-year 2010 comparable earnings per share growth in the low-to-mid single digit range compared with fiscal 2009.
The company also expects that free cash flow will fall below fiscal 2009 levels primarily due to the expected $65 million tax impact from the sale of the value spirits business and $50 million in favorable hedge transaction settlements that is not expected to reoccur in fiscal 2010.
Among others in the sector, alcoholic beverage maker Brown-Forman Corp. (BF-B, BF-A) has recently lowered its fiscal 2009 earnings per share outlook while announcing its third-quarter results. The company cited extreme intricacy and implausibility in the global economy as the reasons for the downward revision of the outlook. Brown-Forman currently expects fiscal 2009 earnings in the range of $2.70 - $2.90 per share, compared with its prior range of $3.00 - $3.20 per share. Analysts are of the view that the company will earn $2.80 per share for fiscal 2009.
STZ is trading at $12.80, down $0.46, on a volume of 1.71 million shares.
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