Constellation Sales Down 8% in 2010 on Divestiture and Exchange Rate Fluctuations
Branded wine organic net sales on a constant currency basis decreased one percent which included a three percent decrease in North America partially offset by increases of seven percent in Europe and four percent in Australia/New Zealand.
13 Apr 2010 --- Constellation Brands, Inc. the world's leading wine company, reported its fiscal 2010 results and fiscal 2011 outlook.
Reported consolidated net sales decreased eight percent due primarily to the impact of the value spirits divestiture and the unfavorable impact of year-over-year currency exchange rate fluctuations. Organic constant currency net sales increased one percent.
Branded wine organic net sales on a constant currency basis decreased one percent which included a three percent decrease in North America partially offset by increases of seven percent in Europe and four percent in Australia/New Zealand. The sales increase in Europe was primarily due to volume growth of lower priced products.
Total spirits organic net sales increased 19 percent for the year, led by a 38 percent gain for SVEDKA vodka. "Sales of SVEDKA vodka continue to experience strong momentum," said Sands. "The brand recently launched the first-ever SVEDKA television advertising campaign which marks an exciting milestone and serves as another example of how SVEDKA is setting itself apart in its quest to bring future fun to vodka lovers everywhere."
Wines segment operating income decreased $37 million versus the prior year. This is primarily due to the divestiture of the value spirits business, the decrease in U.S. branded wine sales and a decrease in operating income from the U.K. and Australian businesses, partially offset by savings from cost reduction initiatives.
Constellation's equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $222 million, a decrease of 12 percent from the prior year. For fiscal 2010, Crown Imports generated net sales of $2.3 billion, a decrease of six percent, and operating income of $444 million, a decrease of 12 percent. Net sales for Crown were impacted primarily by volume declines. Operating income for Crown decreased primarily due to lower volumes, negative mix and a contractual cost increase.
"While the on-premise and convenience store channels were impacted by a challenging economic environment throughout the year, Crown experienced import category market share gains for the year in the grocery channel as they executed targeted promotional and media support programs and introduced new packages for consumers to enjoy at a wide variety of venues and price points," said Sands.
For fiscal 2010, pre-tax restructuring charges, acquisition-related integration costs and unusual items totaled $275 million, compared to $658 million for the prior year.
Interest expense totaled $265 million, a decrease of 18 percent. The decrease was primarily due to lower average borrowings during the year.
"We continue to reduce leverage and improve our credit profile as strong free cash flow generation and proceeds from asset sales drove a $600 million decrease in our debt level for fiscal 2010," said Bob Ryder, chief financial officer, Constellation Brands. "Additionally, in the fourth quarter we successfully amended our senior credit facility, extended a portion of our term loan obligations and prepaid a $250 million 8 1/8 percent senior subordinated note."
Free cash flow for the year totaled $295 million compared to $378 million in the prior year. The decrease was due in part to a $65 million tax payment related to the sale of the value spirits business. For fiscal 2011, the company is targeting free cash flow in the range of $350 - $400 million.
The comparable basis effective tax rate for the year was 30 percent which reflects the favorable outcome of various tax items, and compares to a 36 percent rate for the prior year.
"Given the lingering economic challenges throughout our key markets, I am pleased with our results for the year. We generated strong free cash flow, significantly reduced our debt and greatly improved our cost structure. Fiscal 2010 results reflect continued execution against key strategic goals, the most important of which is our U.S. distributor consolidation effort," said Rob Sands, president and chief executive officer, Constellation Brands. "As our fiscal year came to a close, we worked with our distributors to reduce their fourth quarter inventory levels while securing incremental distributor investments behind our brands. This action reduced fourth quarter sales and profits for our U.S. wine business. Overall, we believe this effort better positions the company and our distributors to drive profitable, organic growth into the future."
