Constellation Brands, Inc. (STZ, STZ-B), a producer and marketer of beverage alcohol products, is slated to announce its fourth-quarter results before the market opens on Wednesday. The results are expected to reflect the impact of weak UK and Australian businesses and global economic crisis. The company has recently lowered its full-year earnings outlook in light of these adverse effects.
Constellation Brands, which had a humble beginning as a wine producer in 1945, is currently one of the largest multi-category suppliers of beverage alcohol, with more than 200 brands. Constellation's large product portfolio includes wine, imported beer and spirits and is managed over two operating divisions, Constellation Wines and Constellation Beers & Spirits.
On average, analysts polled by Thomson Reuters expect the company to report earnings of $0.22 per share and sales of $790.75 million for the fourth quarter ended February 2009. Analysts' estimates typically exclude one-time items.
For the sequentially preceding third quarter, Constellation Brands reported a decline in its profit, hurt by restructuring and acquisition-related costs and other items. Net income for the third quarter was $83.5 million, or $0.38 per Class A common share, compared with $119.6 million, or $0.55 per Class A common share, in the year-ago quarter. Earnings per Class B common share declined to $0.35 from $0.50 in the same quarter last year. Hurt by currency exchange rate fluctuations, third-quarter net sales were down 6% to $1.03 billion from $1.09 billion in the prior-year quarter.
Last month, Constellation Brands announced the completion of the sale of its value spirits business to Sazerac Co., Inc. for $334 million, subject to post-closing adjustments. Net after-tax cash proceeds from the transaction were approximately $210 million, which the company intends to use to further reduce its borrowings in fiscal 2010.
The divestment included the company's 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.
Meanwhile, the company retained spirits brands like SVEDKA Vodka, Black Velvet Canadian Whisky and Paul Masson Grande Amber Brandy. The company said it will consolidate the retained premium spirits business into its North American wine operations.
While announcing the sales completion of the value spirits business, Constellation Brands trimmed its full-year earnings outlook, reflecting challenging global economic environment, particularly the accelerated deterioration in its U.K. and Australian businesses during the fourth quarter. The company currently is expecting full-year comparable basis earnings per share of $1.60 to $1.62, down from its previous estimate of $1.68 to $1.72. The comparable basis outlook excludes one-time charges. Analysts estimate full-year earnings per share of $1.61.
On a reported basis, Constellation Brands is expecting 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 full-year earnings per share between $0.45 and $0.49 on a reported basis.
While commenting on the outlook revision, Rob Sands, president and chief executive officer of Constellation Brands, had 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 added.
Constellation Brands also expects that the challenging macro-economic operating environment will continue in fiscal 2010, and the year's comparable earnings per share growth will be in the low-to-mid single digit range compared with fiscal 2009. Free cash flow is expected to 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 citing extreme intricacy and implausibility in the global economy. 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.
For the recently closed third quarter, Brown-Forman posted higher profit, aided by lower expenses. However, quarterly net sales were down 11%, reflecting the impact of foreign exchange.
STZ closed Tuesday's trading at $11.64, down $0.21, on a volume of 4.56 million shares. For the 52-week period, the company's trading rage was $10.66 - $23.48.
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