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News
Pressure mounts on Constellation wine and beer divisions
Wine and beer dragged down a strong spirits performance as Constellation today released its 2010 fiscal report. Consolidated net sales across the business decreased by 8%, mostly due to the selling off of value spirits brands and the constant fluctuations in currency exchange rates throughout the year.
Despite this fall, the results were better than many analysts had forecasted.
In all, Constellation saw its branded wine organic net sales fall by 1%, with operating income for the wine division decreasing by $37 million versus 2009.
This decline was led by North America, where a fall in branded wine sales led to a 3% drop. The performance was offset by 7% growth in Europe, primarily due to volume growth of lower priced products, and a 4% increase in Australia and New Zealand, as a result of cost-cutting initiatives.
Crown Imports, Constellation’s joint beer venture with Mexican firm Grupo Modelo, generated an operating income of $444m, a loss of 12% on the previous year. This dip was attributed primarily to lower volumes, negative mix and contractual cost increase.
Positive news came from the company’s spirit net sales, which increased by 19% over the year, boosted especially by a 38% gain for its Svedka vodka brand.
In its report, Constellation announced debt decreases for the year amounting to $600m and significantly improved cost structures. The board of directors further authorised a share repurchasing of common market stock worth $300m.
Rob Sands, Constellation’s president & CEO, said: “Given the lingering economic challenges throughout our key markets, I am pleased with our results for the year. We generated strong free cash flow, significantly reduced our debt and greatly improved our cost structure.”
Yesterday’s breakdown of merger talks with Australian Vintage provided a telling backdrop to Sands’ forecast for the year ahead: “Our guidance for fiscal 2011 reflects a number of factors including an uncertain economic environment, continuing pressures on the Crown joint venture and the Australian and UK operations and incremental investments in marketing and a new technology platform.
“We believe we are well positioned to execute on our business strategy for fiscal 2011.”
Rupert Millar, 09.04.10