Friday, December 24, 2010

Constellation Brands (NYSE: STZ): Q3 Earnings Preview 2011

Constellation Brands Inc. (NYSE: STZ), the world's biggest winemaker, is scheduled to release its third-quarter financial results before the market open on Thursday, January 6, 2011. Analysts, on average, expect the company to report earnings of 62 cents per share on revenue of $992.84 million. In the year ago quarter, the company reported earnings of 54 cents per share on revenue of $987.70 million.

Constellation Brands, Inc., together with its subsidiaries, engages in the production and marketing of beverage alcohol brands in wine, spirits, and imported beer categories. Constellation's brand portfolio includes Robert Mondavi, Hardys, Clos du Bois, Blackstone, Arbor Mist, Estancia, Ravenswood, Jackson-Triggs, Kim Crawford, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka. Constellation Brands generates a bulk of its revenue from wine, most of it moderately priced.

In the preceding second quarter, the New York based company's net income was $91.3 million, or 43 cents a share, compared to $99.7 million, or 45 cents a share, in the year-earlier quarter. Revenue declined to $862.8 million from $876.9 million. On a comparable basis, net income was $109.1 million, or 52 cents per share, compared to $120.0 million, or 54 cents per share, in the prior-year quarter. Revenue declined to $862.8 million from $876.9 million. Analysts, on average, expected the company to report earnings of 49 cents per share on revenue of $855.00 million. 

At its last earnings call in October, the company boosted its full year free cash flow target range to $375 million to $425 million versus the previous range of $350 million to $400 million. This would represent an all-time high for Constellation's free cash flow. 
The company also reaffirmed its fiscal 2011 earnings guidance of $1.63 to $1.78 per share, excluding items.

Early in December, the company completed a $300 million accelerated stock buyback. Constellation expects the buyback to add about 9 cents per share to its fiscal 2011 earnings.

The company has benefited from increased sales volumes and depletion. In recent years, the company has shifted focus toward higher-priced wines and spirits, selling off some of its lower-price brands after a two-decade acquisition spree. It also has consolidated divisions, cutting its work force to 6,000 people from 8,200 in 2008.

During the quarter in review, the company announced that it would sell 80% of its Australian and U.K. business to Australia's Champ Private Equity in a deal valued at $290 million. The deal includes nearly all of Constellation's Australian, U.K. and South African brands, wineries, plants and vineyards. The deal with Champ Private Equity is expected to be completed at the end of January. The company expects to use the proceeds to reduce debt. It expects the deal to be neutral to earnings for fiscal 2011 and neutral to slightly dilutive for fiscal 2012. Following the sale, Moody's Investors Service raised the company's ratings outlook to positive from stable, saying that the sale of foreign assets would create a smaller but more profitable business with less risk.

In terms of stock performance, Constellation shares have gained nearly 2% since the beginning of the year.

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