CONSTELLATION’S Q-2 POSTING STRONG GROWTH
Constellation's profits are lower than the same quarter last year, but CEO Richard Sands is consolidating the company’s wine operations in Europe and Australia to cut costs after making approximately 9 acquisitions since 2000 – the most recent one being the $1.1 billion Vincor International takeover in June. Overall sales rose 19% to $1.42 billion from $1.19 billion thanks to heavy demand for Twin Fin wine and Corona beer.
Organic wine sales grew 7% in the second quarter, up from the 4% rise in Q-1, while organic spirits were up 8% as compared to its 3% rise in Q-1. North American wine (primarily the U.S.) grew 34% and 9% in organic sales. Branded wine now makes up 50.5% of sales, while imported beers and spirits take up 24% and 5.9% of sales. Wholesale makes up the rest (19.5%).
Constellation’s premium and super-premium brands remain the primary growth drivers, particularly in the U.S. where consumers continually trade up to $10-$14 wine bottles and high-end spirits.
FOCUSED ON PREMIUM WINES. Vincor’s “portfolio has given us [Constellation] additional breadth in the category,” said Sands. The Vincor acquisition has added premium wines like 3 Blind Moose and Twin Fin, in which Constellation has increased promotional funding as of late. Higher-priced wines like Estancia, which goes for $15 or more, also add growth, taking the focus off of lower-priced wines such as Arbor Mist ($7).
When asked about improving distribution of Vincor’s wine portfolio, Sands replied: “We will ramp up the distribution, and while we have improved the distribution in the past three months, it hasn’t been the main focus.”
Despite suggestions that the Australian grape glut left a negative imprint, Sands claims the surplus did not take much of a toll on overall costs, stating:
“We’re seeing very little impact out of the Australian surplus. If you look at Australian imports in the U.S. pricing is down a little bit, in the 1% range. We don’t consider that down, we consider it a mix effect.”
He remains firm that “the Australian grape situation will resolve itself in the next couple of years.”
“There will be a significant change in the market place that will really allow us to change our margins going forward, probably precipitated by a more stable performance in Australia,” he said. “Give it a couple of years and I think we’ll see some dramatic changes.”
He also pointed out that “there will never be a time when all the global wine markets are doing well at the same time.”
SPIRITS “DOING VERY WELL.” Total spirits net sales increased 8% for the second quarter prompted by investments behind the company's premium spirits brands. Sands told investors that spirits growth “is being driven in a large extent by our premium brands.”
“Our basic [spirits] brands are doing very well, brands like Black Velvet and some of our vodka brands so on and so forth.”
When asked by Bonnie Herzog of Citigroup if Constellation had any possible interest in taking over Absolut, Sands replied:
“We definitely have the financial means but I am not going to comment on whether or not we would be interested. It’s way premature since we believe the potential transaction won’t take place for a couple of years. We could be a very different company by the time that happens.”
However, he did confirm that Constellation is “interested in premium spirits, white or brown.”
"Our spirits business had a very strong quarter as we continue to build our premium spirits brand portfolio and focus on meeting consumer demand for innovative brands and flavor variety in the spirits category," said Sands.
STZ FEELING GOOD. After the Q&A came to a close, Sands summed up the conference call with these parting words:
“We believe success in the alcohol beverage business is a joint compilation of scale and growth.”
“No other alcohol beverage companies have the growth that we have,” he said. “We provide both scale and growth which is why over the scale of time we’re becoming an even more important partner to our wholesalers and shareholders.”
Organic wine sales grew 7% in the second quarter, up from the 4% rise in Q-1, while organic spirits were up 8% as compared to its 3% rise in Q-1. North American wine (primarily the U.S.) grew 34% and 9% in organic sales. Branded wine now makes up 50.5% of sales, while imported beers and spirits take up 24% and 5.9% of sales. Wholesale makes up the rest (19.5%).
Constellation’s premium and super-premium brands remain the primary growth drivers, particularly in the U.S. where consumers continually trade up to $10-$14 wine bottles and high-end spirits.
FOCUSED ON PREMIUM WINES. Vincor’s “portfolio has given us [Constellation] additional breadth in the category,” said Sands. The Vincor acquisition has added premium wines like 3 Blind Moose and Twin Fin, in which Constellation has increased promotional funding as of late. Higher-priced wines like Estancia, which goes for $15 or more, also add growth, taking the focus off of lower-priced wines such as Arbor Mist ($7).
When asked about improving distribution of Vincor’s wine portfolio, Sands replied: “We will ramp up the distribution, and while we have improved the distribution in the past three months, it hasn’t been the main focus.”
Despite suggestions that the Australian grape glut left a negative imprint, Sands claims the surplus did not take much of a toll on overall costs, stating:
“We’re seeing very little impact out of the Australian surplus. If you look at Australian imports in the U.S. pricing is down a little bit, in the 1% range. We don’t consider that down, we consider it a mix effect.”
He remains firm that “the Australian grape situation will resolve itself in the next couple of years.”
“There will be a significant change in the market place that will really allow us to change our margins going forward, probably precipitated by a more stable performance in Australia,” he said. “Give it a couple of years and I think we’ll see some dramatic changes.”
He also pointed out that “there will never be a time when all the global wine markets are doing well at the same time.”
SPIRITS “DOING VERY WELL.” Total spirits net sales increased 8% for the second quarter prompted by investments behind the company's premium spirits brands. Sands told investors that spirits growth “is being driven in a large extent by our premium brands.”
“Our basic [spirits] brands are doing very well, brands like Black Velvet and some of our vodka brands so on and so forth.”
When asked by Bonnie Herzog of Citigroup if Constellation had any possible interest in taking over Absolut, Sands replied:
“We definitely have the financial means but I am not going to comment on whether or not we would be interested. It’s way premature since we believe the potential transaction won’t take place for a couple of years. We could be a very different company by the time that happens.”
However, he did confirm that Constellation is “interested in premium spirits, white or brown.”
"Our spirits business had a very strong quarter as we continue to build our premium spirits brand portfolio and focus on meeting consumer demand for innovative brands and flavor variety in the spirits category," said Sands.
STZ FEELING GOOD. After the Q&A came to a close, Sands summed up the conference call with these parting words:
“We believe success in the alcohol beverage business is a joint compilation of scale and growth.”
“No other alcohol beverage companies have the growth that we have,” he said. “We provide both scale and growth which is why over the scale of time we’re becoming an even more important partner to our wholesalers and shareholders.”
posted at 3:05 PM
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