Constellation Profits Rise in Q3
Reported consolidated net sales decreased two percent due primarily to the divestiture of the U.K. cider business. Organic net sales on a constant currency basis were level with the prior year third quarter.
1/7/2011 --- Constellation Brands, Inc, the world's leading premium wine company, has reported its third quarter fiscal 2011 results.
"We've accomplished a great deal this year including the recently announced sale of our Australian and U.K. business. This is the right move for the company and positions us to better achieve the goals associated with our profitable organic growth strategy," said Rob Sands, president and chief executive officer. "Our third quarter results demonstrate that our strategy is working. We are experiencing continued momentum from our U.S. distributor transition with positive depletion trends recorded during the quarter and we continue to reap the benefits from our diligent focus on free cash flow."
Reported consolidated net sales decreased two percent due primarily to the divestiture of the U.K. cider business. Organic net sales on a constant currency basis were level with the prior year third quarter.
North America wine net sales on a constant currency basis were even with the prior year quarter and reflected favorable product mix offset by a decrease in U.S. volume. "Total depletions for our U.S. wine business increased two percent while depletions for our focus brands, which represent the majority of our U.S. wine profitability, increased high single digits and include some of our well-known products such as Robert Mondavi, Blackstone, Estancia, Kim Crawford, Simi and Wild Horse," said Sands.
Australia and Europe wine net sales on an organic constant currency basis decreased one percent versus the prior year third quarter.
Total spirits organic net sales increased eight percent for the quarter, led by a 34 percent gain for SVEDKA Vodka. "Continued investment in television advertising and events like the New York City Fashion Week have contributed to strong performance for SVEDKA with sales and depletions growing double digits on a fiscal year-to-date basis," said Sands.
The consolidated comparable basis operating income decline was primarily driven by a decrease in the North America wine segment which reflected investments in selling, general and administrative expense.
Constellation's equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $58 million, an increase of 27 percent from the prior year third quarter. For third quarter 2011, Crown generated net sales of $612 million, an increase of 22 percent, and operating income of $116 million, an increase of 27 percent. Net sales and operating income benefited primarily from volume growth.
"During the third quarter, Crown was able to work with wholesalers to optimize inventory levels after experiencing supply chain challenges during the summer," said Sands. "New advertising programs for Corona Extra and Corona Light during the fall sports season have continued to drive solid consumer engagement for these brands. In addition, Modelo Especial, one of the fastest growing beer brands, achieved another milestone by surpassing the 30 million case sales level on an annual basis. We believe these and other initiatives coupled with strong marketplace execution drove mid-single-digit depletion growth during the quarter."
For third quarter 2011, pre-tax restructuring charges and unusual items totaled $6 million compared to $81 million for the prior year third quarter.
Interest expense totaled $49 million, a decrease of 25 percent. The decrease was primarily due to lower average interest rates and borrowings during the quarter.
The comparable basis effective tax rate for the quarter was 29 percent compared to 35 percent for the prior year third quarter. The company now anticipates a full year comparable basis effective tax rate of 31 percent, which reflects the favorable outcome of various tax items.
Constellation recently announced that it signed an agreement to sell its Australian and U.K. business to CHAMP Private Equity. The transaction is valued at approximately A$290 million. The company will retain an approximate 20 percent interest in the business and receive cash proceeds of about $230 million, subject to closing adjustments. The transaction, which is expected to close by the end of January 2011, is subject to customary and routine closing conditions. Constellation expects the net proceeds will be used to reduce borrowings.
