USA: Constellation Brands reports record net sales of $5.2 billion

Constellation Brands, Inc., a leading international producer and marketer of beverage alcohol, today reported record net sales of $5.2 billion for the fiscal year ended Feb. 28, 2007, according to company’s press release of April 5. Net sales were up 13 percent over prior year, primarily due to the June 5, 2006, acquisition of Vincor International Inc. ("Vincor"), and from growth in the base business.

"While we had a solid year of organic net sales growth, our earnings performance was somewhat challenged by competitive conditions in the U.K. market. However, the Constellation Brands business remains fundamentally sound and we were able to achieve several long-term strategic goals throughout the year, including the acquisition and integration of Vincor, formation of the Crown Imports beer joint venture, initiation of the SVEDKA Vodka acquisition and refining the organizational and operational structure of our wine business," said Richard Sands, Constellation Brands chairman and chief executive officer. "To address the weakness experienced in the U.K., we are setting in motion initiatives to grow our business there in under-developed routes-to-market and channels while expanding our presence in other European markets. We are also taking steps to maximize operating efficiencies and achieve increased profitability in the U.K. We always take a long-term view and we are confident in our ability to capture growth opportunities and create value over the long term."

Reported consolidated net sales growth of 13 percent reflects the benefits of the Vincor acquisition and solid organic growth of six percent on a constant currency basis, partially offset by the impact of reporting the Crown Imports joint venture under the equity method beginning Jan. 2, 2007. As a result of the formation of the joint venture, fiscal 2007 included 10 months of imported beers net sales versus 12 months for fiscal 2006.

Crown Imports LLC ("Crown Imports"), the joint venture formed by Constellation Brands and Grupo Modelo to import and market beer in the U.S., commenced operations on Jan. 2, 2007. Imported beers net sales were even with the prior year primarily resulting from Constellation Brands reporting Crown Imports under the equity method.

"Formation of Crown Imports is an exciting development for the Grupo Modelo Mexican beer brands, which include Corona Extra, Corona Light, Pacifico, Negra Modelo and Modelo Especial," said Sands. "This unrivaled Mexican beer portfolio is now being imported and marketed nationwide in the U.S. by a single enterprise for the first time since the brands were imported in 1978. The portfolio had robust growth in the past, and with a single organization focused on these brands we believe the growth prospects will both continue and potentially be accentuated."

The 15 percent increase in organic imported beers net sales was primarily due to volume growth for the Mexican beer portfolio.

"In addition to the Mexican portfolio performing well in fiscal 2007, St. Pauli Girl and Tsingtao experienced growth and we believe these important brands will benefit from being part of Crown Imports," stated Sands.

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

The company recognized $16.5 million of stock-based compensation expense ("stock compensation expense") for fiscal 2007 primarily related to the company's March 1, 2006, adoption of Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment" ("SFAS 123(R)"). The recognition of stock compensation expense reduced operating income growth by approximately two percentage points on a reported and comparable basis. The company also recorded $3.6 million for transaction-related costs and its share of start-up expenses associated with building out the infrastructure in the eastern U.S. for Crown Imports. Operating income growth from the Vincor acquisition and base business was somewhat offset by the impact of reporting Crown Imports under the equity method.

Beers segment operating margin declined 110 basis points, primarily due to higher transportation costs, start-up expenses for Crown Imports and stock compensation expense. Increased material costs and stock compensation expense resulted in spirits margins decreasing 270 basis points.

Interest expense increased 42 percent to $268.7 million for fiscal 2007, primarily due to the financing of the Vincor acquisition and higher average interest rates. The growth in equity investment earnings was primarily due to the start-up of Crown Imports in January 2007. The reported effective tax rate for fiscal 2007 was 38.0 percent compared with 31.8 percent for fiscal 2006. The comparable basis effective tax rate was 35.6 percent for fiscal 2007 versus 34.6 percent for fiscal 2006.

Imported beers net sales decreased 56 percent as the company began reporting Crown Imports under the equity method of accounting in January 2007. As a result, fourth quarter fiscal 2007 included one month of imported beers net sales versus three months in the prior year quarter.

For the fourth quarter of fiscal 2007, operating income was impacted from reporting Crown Imports under the equity method. For the quarter, the company recorded $1.1 million of costs primarily for its share of start-up and transition expenses related to Crown Imports. The company recognized $4.3 million of stock-based compensation expense for the quarter, including $1.8 million for accelerated vesting of stock options for certain employees who moved to Crown Imports.

Interest expense increased 57 percent to $74.4 million for the fourth quarter of fiscal 2007 primarily due to the financing of the Vincor acquisition. The start-up of Crown Imports drove the increase in equity investment earnings. The reported effective tax rate for the fourth quarter of fiscal 2007 was 32.3 percent compared with 25.9 percent for the fourth quarter of fiscal 2006. The comparable basis effective tax rate was 32.9 percent for fourth quarter of fiscal 2007 versus 24.8 percent for the prior year period. Summary

Full-year fiscal 2008 guidance includes the following assumptions, which exclude any impact from the previously announced $500 million share repurchase program:

- Net sales: Low single-digit growth in organic net sales and low single-digit incremental benefit from the acquisitions of Vincor and SVEDKA. As a result of these increases, and the impact of reporting Crown Imports under the equity method, reported net sales are expected to decrease 13 - 15 percent.

- Interest expense: approximately $310 - $320 million

- Stock compensation expense: approximately $30 million

- Tax rate: approximately 38 percent

- Weighted average diluted shares outstanding: approximately 241 million

- Free cash flow: $170 - $190 million

Reported basis ("reported") operating income, equity in earnings of equity method investees, net income and diluted earnings per share are as reported under generally accepted accounting principles. Operating income, equity in earnings of equity method investees, net income and diluted earnings per share on a comparable basis ("comparable"), exclude acquisition-related integration costs, restructuring and related charges and unusual items. The company's measure of segment profitability excludes acquisition-related integration costs, restructuring and related charges and unusual items, which is consistent with the measure used by management to evaluate results.

The company discusses additional non-GAAP measures in this news release, including constant currency net sales, organic net sales, comparable basis EBIT and free cash flow.

Tables reconciling non-GAAP measures, together with definitions of these measures and the reasons management uses these measures, are included in this news release.

About Constellation Brands

Constellation Brands, Inc. is a leading international producer and marketer of beverage alcohol brands with a broad portfolio across the wine, spirits and imported beer categories. Well-known brands in Constellation's portfolio include: Almaden, Arbor Mist, Vendange, Woodbridge by Robert Mondavi, Hardys, Goundrey, Nobilo, Kim Crawford, Alice White, Ruffino, Kumala, Robert Mondavi Private Selection, Rex Goliath, Toasted Head, Blackstone, Ravenswood, Estancia, Franciscan Oakville Estate, Inniskillin, Jackson-Triggs, Simi, Robert Mondavi Winery, Stowells, Blackthorn, Black Velvet, Mr. Boston, Fleischmann's, Paul Masson Grande Amber Brandy, Chi-Chi's, 99 Schnapps, Ridgemont Reserve 1792 and the Effen and SVEDKA vodka lines. Constellation Brands, through Crown Imports LLC, imports and markets Corona Extra, Corona Light, Pacifico, Modelo Especial, Negra Modelo, St. Pauli Girl and Tsingtao beers.

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