This summary is based on the third quarter fiscal 2008 earnings call conducted by Constellation Brands, Inc. (STZ: chart) on January 8, 2007.
Management:
President, Chief Executive Officer: Robert Sands
Executive Vice President, Chief Financial Officer: Robert Ryder
Vice President of Investor Relations: Patty Yahn-Urlaub
Key Investors Issues
- EPS were 55 cents per share compared to 45 cents per share last year.
- Net income was $119.6 million compared to $107.8 million a year earlier.
- Net sales fell to $1.09 billion from $1.50 billion a year ago.
Third Quarter Highlights
Consolidated net sales decreased 27%, reflecting the move of US imported beers to the Crown Imports joint venture and the UK wholesale business to the Matthew Clark joint venture.
These joint ventures follow equity accounting and, therefore, are no longer reflected on the consolidated net sales line. This impact was partially offset by a 1% benefit from the SVEDKA acquisition, 3% benefit from currency, and branded wine growth.
The company experienced a 6% increase in the consolidated organic net sales.
Spirits net sales increased 31% due to the acquisition of SVEDKA and a 12% in organic net sales driven by higher average selling prices and volume gains for branded spirits portfolio, as well as an increase in production services business.
World-wide branded wine organic net sales increase 4%.
- Branded wine net sales for North America increased 5% reflecting solid growth in the US and increase in Canada.
- For Europe, branded wine organic net sales increased 4% reflecting increased sales of popular priced wines in mainland Europe and increase in sales in the UK.
- Australian/New Zealand branded wine net sales were level with last year. The markets in the UK and Australia remain highly competitive with ongoing pricing pressures.
Consolidated gross margin was 36.3%, up 5.3 percentage points.
This primarily reflected the benefits of shifting the lower margin UK wholesale and imported beer businesses to joint venture structures subject to equity accounting somewhat offset by lower margins for the branded wine businesses in the UK and Australia.
Consolidated SG&A was 18% of net sales compared with 12.5% a year ago.
This increase was primarily due to moving the imported beer and UK wholesale businesses to joint venture structures. The company saw increased management incentive expense due to a low bonus accrual in the prior year.
The company has recognized higher stock compensation expense for the transition effects of the new option accounting rules. The quarter also includes higher marketing support for branded wine inthe UK.
Consolidated operating income decreased to $200 million from $279 million for the prior year’s quarter.
This change was primarily driven by the factors already mentioned, combined with reporting $62 million of equity earnings for the Crown joint venture compared to the third quarter of last year when $60 million of earnings for imported beer business was included in operating income.
The year-over-year increase in beer business profitability reflects increased pricing and the economics of having a national platform for the Modella portfolio. The company saw lower profit growth for the beer business versus the first half of the year. This was primarily attributable to the high level of sales and the prior year third quarter as the business was preparing for the Crown transition.
