Wednesday, beverage alcohol products maker Constellation Brands, Inc. (STZ, STZ-B) reported a narrower net loss for the fourth quarter, reflecting lower one-time charges compared to last year. On an adjusted basis, earnings plunged 38% and missed market projections. Further, the world's largest wine company provided fiscal 2010 comparable earnings forecast, which is in line with analysts' current estimates.
Fourth-quarter net loss was $406.8 million compared to a net loss of $834.8 million in the same quarter of last year. Net loss was $1.88 per Class A share compared to a loss of $3.91 Class A per share in the year ago quarter. On a Class B share basis, loss narrowed to $1.71 from prior year's loss of $3.55.
For fourth quarter 2009, the company recorded pre-tax restructuring charges, acquisition-related integration costs and unusual items of $468 million compared to $893 million for the prior-year quarter.
On an adjusted basis, comparable net income fell 37% to $46.7 million from $73.8 million last year, and comparable earnings per share declined 38% to $0.21 from prior year's $0.34. On average, seven analysts polled by Thomson Reuters expected the company to report earnings of $0.22 per share for the quarter. Analysts' estimates typically exclude special items.
Total sales for the quarter were $964.9 million, down from $1.14 billion. Net sales fell 17% to $735.1 million from $884.4 million in the prior-year quarter, missing Wall Street analysts' consensus estimate of $790.75 million.
Constellation Brands attributed the decline in sales primarily to the impact of currency exchange rate fluctuations, the divestitures of the Almaden, Inglenook, certain Pacific Northwest wine brands, and the exit of certain spirits contract production services.
On a constant currency basis, consolidated sales fell 8%, and the decline was 13% on organic basis and 3% on organic constant currency basis.
In the sequentially preceding third quarter, Constellation Brands reported a decline in its profit to $83.5 million, or $0.38 per Class A share from $119.6 million or $0.55 per Class A share last year, hurt by restructuring and acquisition-related costs and other items. Hurt by currency exchange rate fluctuations, third-quarter net sales were down 6% to $1.03 billion.
Segment-wise, in Constellation Wines, fourth-quarter Branded Wine net sales fell 17% year-over-year to $618.8 million, reflecting the impact of increasingly challenging economic conditions, especially in the U.K. and Australia, price increases and planned SKU reductions. Wholesale/other net sales plunged 44% to $23.7 million.
In Constellation Spirits segment, quarterly net sales dropped 3% to $92.6 million, while spirits organic net sales increased 6%, driven by the growth of SVEDKA.
Geographically, net sales from North America dropped 9% year-over-year to $553.2 million, while the fall was 36% in Europe to $111.9 million, and 30% in Australia/ New Zealand net sales to $70.1 million.
Rob Sands, president and chief executive officer of Constellation Brands, said, Turbulent global trading conditions negatively impacted our sales mix in the fourth quarter, which in turn affected our gross profit margins. However, we have been able to partially offset these challenges through cost reductions which reflect our flexibility to quickly adapt.
Gross margin fell to 26.0% from last year's 35.2%, and comparable gross margin dropped to 33.4% from 37.3% a year ago.
In the quarter, the company's operating loss was $286.9 million narrower than loss of $740.4 million. On a comparable basis, operating income fell 26% year-over-year to $102 million and operating margin dropped 160 basis points to 13.9%.
Selling, general and administrative expenses also declined to $171.2 million from $227.1 million last year.
For the fiscal year 2009, Constellation Brands' net loss narrowed to $301.4 million or $1.40 per Class A share from prior year's net loss of $613.3 million or $2.83 per Class A share. On a per Class B share basis, loss was $1.27, compared to loss of $2.57 a year ago.
For fiscal 2009, pre-tax restructuring charges, acquisition-related integration costs and unusual items totaled $658 million, compared to $918 million for the prior year.
Comparable net income grew 9% to $35.3 million from $321 million a year ago, and comparable earnings per share increased 11% to $1.60 for the year from $1.44 last year.
The company was expecting reported loss per share in the range of $1.26 - $1.28, and comparable earnings per share of $1.60 to $1.62 for the year.
Consolidated sales declined to $4.72 billion from prior year's $4.89 billion, and consolidated net sales dropped 3% to $3.66 billion from $3.77 billion a year earlier, mainly due to the impact of currency exchange rate fluctuation. Organic net sales increased 4% on a constant currency basis.
Analysts expected earnings of $1.61 per share on net sales of $3.71 billion for the year 2009.
Sand said, Throughout fiscal 2009, we made great strides in a number of key areas including strong free cash flow generation, reducing borrowings, creating internal efficiencies and transforming our product portfolio through acquisitions and divestitures.
Looking ahead, for fiscal 2010, Constellation Brands expects reported earnings in a range of $0.97 - $1.07 per share, including about $106 million charges related to planned operational changes and inventory step-up costs.
On a comparable basis, earnings are expected to be in the range of $1.60 - $1.70 per share. Analysts expect the company to report earnings of $1.65 per share for fiscal 2010, with estimates ranging between $1.60 and $1.70 per share.
Earlier, Constellation Brands had noted that it 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.
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.
For fiscal 2010, Constellation Brands is targeting free cash flow in the range of $230 million - $270 million. The company recently noted that its 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.
In addition, the company said it will implement operational changes, beginning in the first quarter of fiscal 2010, aiming to simplify the business, increase efficiencies and reduce its cost structure on a global basis. As announced on March 25, the company expects these actions to result in the elimination of approximately 5% of its global workforce and rationalization of certain facilities.
Constellation Brands expects the initiatives to result in cost savings of approximately $25 million in fiscal 2010 and more than $50 million by the end of fiscal 2011, including synergies from consolidating the retained spirits brands into the North American wine business.
In connection with the global initiative, the company's expected total charges are $112 million, comprising one-time cash charges of approximately $83 million and one-time non-cash charges of approximately $29 million.
Sands concluded, Given the difficult and uncertain economic conditions, we are cautious with our outlook for fiscal 2010. However, our business strategy remains intact, we have a clear path forward and plan to be prudent in managing the bottom line by focusing on right-sizing our organization, creating efficiencies and rapidly deleveraging.
STZ is currently trading at $11.20, down $0.44 or 3.78% on a volume of 1.188 million shares. For the 52-week period, the company's trading range was $10.66 - $23.48.
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