Grape prices hit Constellation Brands profits

Constellation Brands reported a 6% growth in net sales for the first quarter of its financial year, but said that higher grape prices and other costs had cut into its profits.

Constellation BrandsNet sales were up 6% to US$673 million, compared to the same period last year, but operating income was down by 5% to $104m.

Rob Sands, Constellation’s president and chief executive officer, said: “From an operational perspective, we are off to a positive start for the year, as we achieved our first quarter goals and objectives. I am particularly pleased with our commercial results as we continued to gain market share in IRI channels across our beer, wine and spirits businesses during the quarter.”

He added: “We experienced positive top line results for our U.S. wine and spirits business in the first quarter driven primarily by our Focus Brands including double-digit depletion trends for Rex Goliath, Kim Crawford, Nobilo, SIMI and Black Box. In addition, we continue to gain traction with our award winning portfolio of new products including Simply Naked, Thorny Rose and The Dreaming Tree.”

Constellation’s wine and spirits increased by 4%, primarily due to an increase in volume, with the acquisition of Mark West “complementing the organic growth.”

Constellation has also gained the total US rights to the Mexican Modelo beer portfolio, including Corona Extra and Corona Light. Sands has previously described the deal, which was completed on 7 June at a cost of around $4.75bn, as “the most transformational in the history of the company.”

In talking about these first quarter results, Sands added: “The recent closing of our transformational beer acquisition has been a rewarding way to kick off fiscal 2014. This deal positions Constellation within the top ranks of the U.S. beer industry and significantly increases the size and scope of our company.”

Although the increased costs have hit Constellation in this quarter the future looks promising for the company as the Wall Street Journal reported that analysts surveyed by Thomson Reuters have projected Constellation’s sales will soar 75% from the prior year’s level.

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