Constellation Sales Up 18% in Third Quarter

05/01/07 Constellation Brands, Inc. a leading international producer and marketer of beverage alcohol has reported record net sales of $1.5 billion for the quarter ended Nov. 30, 2006 ("third quarter 2007"). Net sales were up 18 percent over prior year, primarily due to the June 5, 2006, acquisition of Vincor International Inc., and from growth in the base business. Branded business net sales grew 18 percent. This increase was due to the addition of Vincor and four percent growth for branded business organic net sales on a constant currency basis.

"Strong imported beer performance, growth from branded wine in North America, and the addition of Vincor generated solid results for the quarter," said Richard Sands, Constellation Brands chairman and chief executive officer. "We continue to be very optimistic about our portfolio's long-term growth potential, although our third quarter results reflect ongoing softness in our U.K. branded wine business as very challenging market conditions persist."

Branded wine net sales growth reflects the addition of Vincor and a one percent decrease in branded wine organic net sales on a constant currency basis. Organic growth of branded wine for North America was more than offset by a decrease in Europe.

Net sales of branded wine for North America increased 29 percent due to the Vincor acquisition and four percent growth in the base business. Branded wine net sales for Australia/New Zealand increased nine percent due to Vincor and a decrease of two percent in the base business. Net sales of branded wine for Europe increased four percent (negative three percent on a constant currency basis) reflecting the addition of Vincor and a decrease of nine percent in the base business (negative 16 percent on a constant currency basis).

The decrease in Europe was primarily in the U.K., reflecting lower volumes and the impact of the large retailers benefiting from a highly competitive environment, particularly given the availability of low cost bulk Australian wine. Additionally, competitive conditions have not allowed the annual U.K. duty increase to be passed on to retailers. The company believes this situation is unlikely to change in the near term, and Constellation continues to focus on increasing its operating efficiencies in this intensely competitive market.

There are signs that the industry could see a firming of the Australian bulk wine market. In Australia, ongoing drought and late spring frost could reduce the wine grape harvest by approximately 15 to 25 percent in 2007 according to industry projections, versus the large 2006 harvest. The effects of ongoing drought conditions may also impact the size of the 2008 harvest. Significant reductions in the 2007 and 2008 harvests could impact the oversupply and may result in firming prices for Australian bulk wine.

Organic net sales for wholesale and other increased six percent on a constant currency basis, primarily from growth in the company's U.K. wholesale business.

The 16 percent increase in imported beers net sales was primarily due to volume growth in Constellation's Mexican beer portfolio, which includes Corona Extra, Corona Light, Pacifico, Modelo Especial and Negra Modelo, as well as growth in the St. Pauli Girl brand.

"Constellation's imported beer business delivered strong third quarter growth as consumers continued to trade up in the category, and both the bottle supply and inventory levels for Corona Extra and Corona Light improved during the quarter," stated Sands. "Crown Imports LLC, the joint venture formed by Constellation Brands and Grupo Modelo to import and market beer in the United States and Guam, commenced operations on Jan. 2, 2007, and the transition to a single importer and marketer is progressing as planned."

Total spirits net sales increased four percent for third quarter 2007. Investments behind the company's premium spirits brands helped drive a six percent increase in branded spirits, while contract production services decreased seven percent.

"We continue to build our premium spirits portfolio with focus on our investment brands including Effen Vodka, Cocktails by Jenn and Ridgemont Reserve 1792 bourbon, and priority growth brands such as Black Velvet Canadian whisky, Meukow cognac and Chi-Chi's prepared cocktails," said Sands.

For third quarter 2007, operating income increased primarily due to the acquisition of Vincor, as well as growth in the base business. The company incurred $4.4 million of stock-based compensation expense ("stock compensation expense") for third quarter 2007 related to the company's March 1, 2006, adoption of Statement of Financial Accounting Standards No. 123, "Share-Based Payment". The recognition of stock compensation expense reduced operating income growth by approximately two percentage points. For the quarter, the company also recorded approximately $1.0 million for its share of start-up and transition expenses related to building out the infrastructure in the eastern United States for Crown Imports LLC joint venture.

Wines segment operating margin decreased 70 basis points. This is primarily due to competitive U.K. market conditions that have made it difficult for the company to pass along the annual duty increase and the impact of lower U.K. sales on fixed cost absorption. The impact of these factors was somewhat offset by synergies and mix benefit from the Vincor acquisition. Beers and spirits segment operating margin declined 140 basis points for the quarter, primarily due to higher transportation costs for imported beers, increased material costs for spirits and higher spending behind premium spirits.

Interest expense increased 52 percent to $73.1 million for third quarter 2007, primarily due to the financing of the Vincor acquisition and higher average interest rates. The reported effective tax rate for third quarter 2007 was 37.7 percent compared with 39.4 percent for third quarter 2006. The comparable basis effective tax rate was 36.1 percent for third quarter 2007 versus 39.3 percent for the prior year period.

"We continue to harvest opportunities from our existing portfolio, new product development, strategic partnerships and acquisitions," explained Sands. "We are evaluating strategic options to address challenges in the U.K. market and strengthen our long-term position, while we maintain our focus on improving efficiency. Our commitment to improving upon Constellation's leadership position in beverage alcohol and creating shareholder value, while increasing our return on invested capital, is unwavering. Opportunities such as our acquisition of Vincor expand and complement Constellation's portfolio breadth and geographic and distribution scale, and we are pleased with the performance of the Vincor brands, as well as with the seamless integration of Vincor operations into Constellation's international footprint. Additionally, we are encouraged and optimistic about the growth potential for our Crown Imports beer joint venture in fiscal 2008 and beyond. We believe there continue to be opportunities to harvest additional long-term growth and value creation," concluded Sands.