Constellation Brands outlook weak; shares dip

By Jessica Wohl and Phil Wahba

CHICAGO/NEW YORK (BestGrowthStock) – Constellation Brands Inc (STZ.N: ) forecast full-year results below Wall Street estimates, reflecting its concerns about lackluster consumer spending on its alcoholic drinks and a frayed joint venture with Mexico’s Grupo Modelo, sending its shares lower.

Constellation has a 50 percent stake in Crown Imports, a joint venture with Modelo (GMODELOC.MX: ) that imports beers like Corona into the United States. The venture faces pressure from other imported beers, while Modelo is suing Constellation over marketing costs.

Constellation filed a motion to dismiss the lawsuit, which it believes is generally immaterial, Chief Executive Rob Sands said during a conference call.

Sands said Constellation’s modest fiscal 2011 profit forecast partly reflects the weakness of the joint venture, as many U.S. consumers continue to buy less expensive beers, and pressure on its Australian and UK operations.

The purveyor of Robert Mondavi wine, Svedka vodka and other drinks expects to earn $1.53 to $1.68 per share in fiscal 2011, below analysts’ forecast of $1.77 per share.

Shares in the company fell 3.9 percent to $16.19.

“The quarter looked OK but the outlook’s quite soft,” said Morningstar analyst Philip Gorham of Constellation’s fourth-quarter results and 2011 forecast. “I think things are going to remain challenging, costs will likely rise; the competitive environment isn’t going to ease up any time soon.”

“Corona’s been a strong brand for a long time, but it’s likely to continue to lose market share to new entrants” as more craft and imported beers enter the United States, he said.

Beer sales have been crimped at bars, restaurants and convenience stores, but Sands said that the Crown portfolio outperformed other imported beers and grew market share last year.

Crown Imports sales fell 4 percent during the fiscal fourth quarter, and Constellation’s cut of the venture’s profits fell 11 percent to $41 million.

Crown’s volume should be flat to down in a low-single-digit percentage range this year, while Constellation’s equity earnings from the venture should decline in the mid-single digits, Chief Financial Officer Bob Ryder said. He said the joint venture would spend more on marketing in the current first quarter.

Constellation, the world’s biggest seller of branded wine, reported a net loss of $51 million, or 23 cents per share, for its fiscal fourth quarter ended February 28, compared with a loss of $406.8 million, or $1.88 per share, a year earlier. Excluding restructuring charges it made 27 cents per share.

Sales fell 3.5 percent to $708.7 million.

Analysts on average were expecting earnings of 24 cents per share, excluding items, on sales of $733.8 million, according to Thomson Reuters I/B/E/S.

A TAX LIFT TO PROFITS

Constellation’s adjusted profit was helped by an 11 cent per share favorable tax contribution, assuming a 36 percent tax rate, Morgan Stanley analyst Dara Mohsenian said.

He sees the fourth quarter as “the fundamental bottom” and suggested that investors buy the shares on weakness.

Mohsenian, who has an “overweight” rating on Constellation, said the midpoint of its fiscal 2011 forecast is conservative and that share repurchases could add about 4 cents to its per-share profit.

Constellation sales rose 2 percent in its wine business and fell 49 percent in its spirits business in the fourth quarter because of a divestiture of some of its spirits products.

Like most wine, beer and spirits companies, Constellation’s sales have suffered in the downturn as consumers cut back on drinking at bars and restaurants or buy lower-priced drinks. Alcoholic drink sales at stores have risen as people drink at home instead, but that has not made up for the decline.

A survey released on Friday showed that most U.S. consumers plan to spend the same amount or less on alcoholic drinks this year.

Sands does not expect consumers’ wine buying habits to change significantly until the unemployment rate improves. He expects U.S. wine industry volume to grow about 1 percent this year and wants Constellation to grow in line with the industry.

On Wednesday, Constellation said it and Australian Vintage (AVG.AX: ) decided to end discussions on combining the companies’ Australian and British wine operations.

Constellation’s board authorized a $300 million share buyback program, which the company aims to basically complete in 2011.

(Reporting by Phil Wahba and Martinne Geller in New York and Jessica Wohl in Chicago; Editing by Gerald E. McCormick, Derek Caney, Robert MacMillan and Phil Berlowitz)

Constellation Brands outlook weak; shares dip