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Highlights From Constellation Brands' (STZ) Q1 Conference Call; Guides In-line For FY10


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July 1, 2009 2:39 PM EDT
Constellation Brands Inc. (NYSE: STZ) reports Q1 EPS of $0.33, versus the consensus of $0.32. Revenues came in at $792 million, versus the consensus of $780.9 million.

Highlights From STZ's Q1 Conference Call:

  • Constellation Brands sees FY10 EPS on a comparable basis of $1.60 - $1.70, versus the consensus of $1.62.
  • (CEO) Despite the ongoing challenges in a difficult operating environment worldwide, we continue to reduce our debt and improve our operating margins.
  • During the quarter we completed the integration of our remaining Spirit business into North American line organization and began refining the restructure of our U.S. wine business into a single integrated organization, especially in the areas of sales and marketing.
  • We are currently in the process of negotiating with our distributors. The initial transition were of the 17 stage representing approximately 50% of our total US volume per wine and spirits. The goal of our new US organizational structure and distributor consolidation initiative is to gain better alignment of dedicated selling resources working on a focus set of priorities and practices and a driving execution and accountability.
  • The premium fourth segment of the market where wine sales were greater than $5 a bottle of retail continues to grow inline with the category. Many of our well-known premium wine brands performed well in the market place during the quarter.
  • As you know Australia and the UK continue to be challenge by a various of issues that have negatively impacted our business in these occasions.
  • The 2009 grape grape harvest in Australia is now complete.Although final data is not yet available, it appears that the current harvest estimate is approximately 1.7 million tons last year. However, overall
    supply continued to outstrip demand.
  • Moving to the Crown imports joint venture, Crown experienced positive momentum during the holiday dragging year-over-year improvement through excellent execution of retail.
  • (CFO) Our comparable base with diluted EPS for the quarter in a $0.33 a share versus $0.34 last year.
  • We also continue to pay down debt in a lower way to achieving a comparable basis GAAP to EBITDA ratio by the end of fiscal 2010 in the high three times range.
  • Our consolidated reported net sales decreased 15% Primarily due to an impact of year-over-year
    currency exchange rate fluctuations and the divestiture of our value spirits business.
  • Our worldwide branded wine organic net sales increased 1%. Organic branded wine net sales for North America which appears on page 12 of the release decreased 1%, while Europe, Australia and New Zealand increased 6% and 7% respectively.
  • Australia, New Zealand saw some improvement on on a small base driven sales in the Asia Pacific regions. Spirits are going again the net sales increased 13%, led by 33% growth from SVEDKA Vodka.
  • Our consolidated SG&A for the quarter was 19.3% of net sale compared to 22.3% a year ago.
  • At the end of May, our debt totaled $4.3 billion which represent $112 million decrease from our debt level at the end of fiscal 2009. The decrease reflects proceeds received in the sale of the value spirits business, partially offset by the use of free cash flow in the quarter.
  • Our comparable basis tax rate came in at 39% compared to 37% last year. We are still targeting a full year tax rate of 38%.
  • For fiscal 2010, we are still targeting free cash flow to be in the range of $230 to $270 million. This includes CapEx in the range of 150 to 179 million.
  • (Q&A) As you get into the latter half of the year, have you I know you don't think quarterly guidance but if you given thoughts to have a currency impacts, shake out and what that maybe and for you particularly with regard to new strategy in Australia and the UK? (A) We do look at that stuff, but if we were real good at anticipating ForEx rates will be working down on Wall Street but what we try to do with all our, with our hedged activities. Is we tried to offset the volatility, so for instance in this quarter we actually saw some positive impact from our hedges whereas in last years first quarter we saw some negative impact from hedges specifically, how they're offsetting things up in the other, up in the other line items. But we don't, its not a really a big number. We expect ForEx volatility to be, may be a positive, negative of about a penny in any quarter.

Constellation Brands, Inc. operates in the beverage alcohol industry. It engages in the production and marketing of beverage alcohol brands in wine, spirits, and imported beer categories.

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