USA: Constellation Brands reports higher 2nd-quarter profit

Constellation Brands, Inc., a leading international producer and marketer of beverage alcohol, reported diluted earnings per share ("EPS") on a reported basis of $0.33 for the quarter ended Aug. 31, 2007 ("second quarter 2008"), compared with $0.28 for the prior year second quarter, according to company’s press release, October 4. On a comparable basis, second quarter 2008 diluted EPS totalled $0.35 versus $0.43 for the prior year.

"We have substantially completed our previously announced U.S. wine distributor inventory reduction initiative during the second quarter," stated Rob Sands, Constellation Brands president and chief executive officer. "For the quarter, we delivered solid cash flow and reduced our debt by more than $200 million from first quarter levels. As anticipated, both the U.S. wine distributor inventory reduction and the lingering softness in our U.K. business impacted our overall performance. However, we believe the distributor inventory initiative, as well as our ongoing efforts to improve performance in the U.K., will better position us for long-term growth."

The decrease in operating income and the increase in equity earnings for second quarter 2008 were primarily due to the impact of reporting $78.8 million of equity earnings from the Crown Imports joint venture under the equity method. "Our Crown Imports joint venture is gaining traction and we look for continued growth as we strive to maximize the long-term potential for Corona and the other brands in the joint venture's leading imported beer portfolio in the U.S.," stated Sands.

For the second quarter, acquisition-related integration costs, restructuring and related charges and unusual items totaled $8.0 million, compared with $53.9 million for the prior year. Net income and diluted EPS were also impacted by interest expense, which increased 20 percent to $86.7 million for second quarter 2008, primarily due to the financing of the SVEDKA acquisition and $500 million of share repurchases. Due to strong free cash flow generated during the quarter, total debt decreased by more than $200 million from first quarter levels.

Share Repurchases

During the second quarter, the company received an additional 0.9 million shares under the accelerated share repurchase transaction announced in May 2007, which completed the transaction. The company did not make any additional cash payments in connection with receipt of these shares. For the first half of fiscal 2008, the company purchased 21.3 million shares of its class A common stock through a combination of open market repurchases and an accelerated share repurchase transaction at an aggregate cost of $500 million, or an average of $23.44 per share.

Full-year fiscal 2008 guidance includes the following current assumptions:

- Net sales: low single-digit growth in organic net sales and low single-digit incremental benefit from the acquisitions of Vincor International Inc. and the SVEDKA Vodka brand and related business. As a result of these increases, and the impact of reporting the Crown Imports joint venture and the joint venture for the Matthew Clark wholesale business under the equity method, reported net sales are expected to decrease 30 to 32 percent from net sales for fiscal year 2007

- Interest expense: approximately $330 - $340 million

- Stock compensation expense: approximately $30 million

- Tax rate: approximately 39 percent on a reported basis, which includes a provision of approximately two percentage points related to the loss on disposal in connection with the company's contribution of its U.K. wholesale business to the Matthew Clark joint venture and the repatriation of proceeds associated with this transaction, or approximately 37 percent on a comparable basis

- Weighted average diluted shares outstanding: approximately 225 million

- Free cash flow: $160 - $180 million