Constellation: The Year of Premiums
A number of temporary issues negatively impacted Constellation’s results in the fiscal year, but overall the company had a solid performance. Issues between the Australian and UK businesses resulting in lower sales continue to take a toll on Constellation, albeit small, in addition to the recent reduction in U.S. distributor inventory in the second quarter. Those factors were partially offset by the benefits of the Vincor, Svedka and Fortune Brands acquisitions and favorable foreign currency.
In other words, Constellation has been busy this year with the following: the acquisition of Svedka and the Fortune Brands wine portfolio, selling the Almaden and Inglenook brands, completing Crown Imports transition, reducing U.S. distributor wine inventory and the creation of a j-v for Matthew Clark.
Distributor inventories were at STZ’s targeted levels by the end of February, and the company does not have any plans to reduce the inventories further.
“We finished it pretty much in the second half of last year and we’re very comfortable with distributor inventory levels. No intention at this stage to reduce them further...reduction in Fortune inventory was also completed at the end of last year,” said Rob Sands, president and ceo.
U.S. NET WINE SALES. In the fiscal year, branded wine sales decreased -3% in North America, which reflected solid growth in Canada, but was offset by the distributor inventory reduction during the first half of fiscal 2008. Sales to retailers grew in the low to mid-single digits.
Fourth quarter branded wine net sales decreased -5%, as the completion of the inventory reduction earlier in the year resulted in a timing shift for the company's U.S. wine sales. Under new shipment patterns, and after the peak holiday selling period in the third quarter, the company returned to the lower distributor inventory levels achieved at the end of the second quarter, which negatively impacted fourth quarter growth.
“There was positive depletion growth in the fourth quarter for North American wine and yes, there was a -5% decline in sales, but as we told you in the past that was primarily related to the change in shipment patterns as result of distributor inventory reduction. Historically, we shift more production in the fourth quarter than what will be our new shipment patterns. The sales, consequently, downturn was fully expected and not reflective of underlying sales trends,” said Rob.
He also remarked that the depletions from the 3rd quarter to the 4th quarter improved.
SPIRITS. Total spirits net sales increased 26%, primarily due to the March 2007 acquisition of Svedka, and grew 9% in organic net sales.
"Svedka continues delivering phenomenal sales performance and remains the fastest growing major imported premium vodka brand in the U.S.," said Sands.
ECONOMIC SLOWDOWN. The execs at Constellation do not think the current economic slowdown will have much of an impact on the premium and super-premium wine biz. Rob said that so far “it’s been business as usual,” but acknowledged there has been a shift from on-premise to off-premise.
“We do tend to see venue shifts in economic downturns. We’ve seen some shift from on-premise to off-premise, particularly a shift from off-premise to mass merchandisers away from chain and specialty wine accounts. In general, the wine business has been pretty strong.”
“In wine we continue to see much of the same trends...strong growth in the premium and premium-plus categories, especially in the super-premium category where we’re seeing very, very strong double digit growth, and strong trading up trends in the wine business. The very highest price tiers in the wine business may see some slight softness as result of the economy but basically that’s immaterial to the wine business as a whole.”
“We don’t anticipate that these categories should show any different momentum then they have in the past. Our acquisitions in general are performing extremely well and have added a lot of value to the company.”
MONDAVI BRANDS. Premium and super-premium wines are apparently doing well, but what about the Mondavi brands? As one analyst pointed out, the Mondavi brands suffered during the last recession roughly five years ago. Rob said, however, that things have changed since then, most notably the California harvest.
“I think the Mondavi brands are really strong brands and have even gotten stronger since that time. Our having acquired them and our execution against those brands has been superlative and we have strengthened those brands...brands like Woodbridge grew 6% last year. I can tell you right now that we would not have conservatively estimated that the brand would have grown at that rate but we were very pleased with the way it’s been performing,” said Rob.
“In the time period that you’re citing, there is a big factor between then and now. There was a big oversupply of grapes at that particular time that created some of the phenomenon in the marketplace like Two Buck Chuck, and we don’t have the same level of marginal players that we had in that timeframe...we also now have the strongest organization in the industry selling and marketing the Mondavi brands..”
UK AND AUSTRALIA. As Constellation as said in the past, the UK and Australian business continue to be impacted by pricing pressures driven by the large grocery retailers, Australian wine over-supply and U.K. duty increases. Due to these competitive pressures, the company's profitability in the U.K. and Australia businesses has decreased over the past few years.
Sands said the company believes “in the long-term value of both of these businesses, and are confident we are taking the right measures to improve operating efficiencies and our competitive position.” He also expects things to get better in fiscal 2009and beyond.
With that said, cfo Bob Ryder stated later in the call that problems with Australia were not anticipated when acquiring Hardy Wine Co. several years ago.
“The Hardy acquisition was a unique thing...the profits from Australian is a lot less then what we expected when we acquired Hardy.”
“The situation with Australian and the UK is a very unique set of circumstances...its bottomed out, we’re pretty optimistic at this stage that there’s only upside opposed to downside, and we’re talking about 10% of our EBIT. Its importance has greatly diminished...if you look at those factors, we’re pretty optimistic as we move forward,” said Rob. “Nature has helped us a little this year because of the low harvest in New Zealand, Australian ad the US as well.”
The company also said they do not anticipate impairment issues with any other acquisition.
ACQUSITION PROSPECTS. When asked whether there were any acquisitions on the horizon, particularly on the heels of Pernod buying V&S, Rob kept things pretty general:
“We’re pretty focused on optimizing our existing business and generating efficiencies...acquisitions remain a part of our strategy. So we won’t rule out acquisitions at this point...we are very well positioned for the future.”
“If it makes sense to dispose of anything and there’s a buyer and the right price can be attained, that’s always a possibility,” he continued.
VINCOR CANADA ACQUIRES MEDALLION WINE MARKETING
Vincor Canada today acquired the business of Medallion Wine Marketing, Inc., its affiliated company in Western Canada. Terms of the transaction were not disclosed.
As a result of the acquisition, Vincor Canada will assume direct responsibility for the distribution and sale in Western Canada of the wines of its affiliated companies, including Robert Mondavi, Hardys and Nobilo. Vincor will also become the western distributor for its sister company, Constellation Spirits.
Additionally, Vincor Canada will become the distributor for Quails’ Gate and CedarCreek VQA estate wineries from the Okanagan in the provinces of British Columbia, Alberta, Manitoba and Saskatchewan. Quails’ Gate Estate Winery remains owned and operated by the Stewart family. CedarCreek Estate Winery remains owned and operated by the Fitzpatrick family.
JACK DANIEL’S NAMES NEW MASTER DISTILLER
Jeff Arnett was named master distiller at the Jack Daniel Distillery at Lynchburg, Tenn., on Wednesday (April 2). He succeeds his mentor for the past seven years, Jimmy Bedford. The 41-year-old Arnett becomes just the seventh master distiller of Jack. Bedford retired last month after a 40-year career at Jack Daniel's, the last 20 as master distiller in which he became the promotional face behind the product.
WINE & SPIRITS CONTRIBUTE BILLIONS TO THE ECONOMY
The wine and spirits industry contributes over $137 billion to the U.S. economy every year, including more than 1.1 million jobs that pay almost $71 billion in wages, according to an economic study commissioned by the WSWA. For every dollar spent on wholesaling, according to the study, the economy realizes $1.41 in total value.
“Unlike countries without an independent wholesaler tier, the U.S. system is explicitly designed to prevent a black or gray market and keep all transactions for beverage alcohol in the U.S. on the books,” said ceo Craig Wolf.
View the entire study at www.wswa.org.
WSD BRIEF:
COLORADO LAWMAKERS VOTE NOT TO RAISE TAXES on beer, wine and spirits.
The House Finance Committee voted 9-2 Wednesday (April 2) against House Bill 1341, which would have raised taxes 2%. The measure would have also required the approval of Colorado voters this fall. Colorado has the lowest taxes on alcohol sales of any state in the country that taxes beer, wine and spirits, according to local reports.
Until tomorrow, Megan
“I finally figured out the only reason to be alive is to enjoy it.”
Rita Mae Brown
--------- Sell Day Calendar ----------
Today's Sell Day: 3
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0
In other words, Constellation has been busy this year with the following: the acquisition of Svedka and the Fortune Brands wine portfolio, selling the Almaden and Inglenook brands, completing Crown Imports transition, reducing U.S. distributor wine inventory and the creation of a j-v for Matthew Clark.
Distributor inventories were at STZ’s targeted levels by the end of February, and the company does not have any plans to reduce the inventories further.
“We finished it pretty much in the second half of last year and we’re very comfortable with distributor inventory levels. No intention at this stage to reduce them further...reduction in Fortune inventory was also completed at the end of last year,” said Rob Sands, president and ceo.
U.S. NET WINE SALES. In the fiscal year, branded wine sales decreased -3% in North America, which reflected solid growth in Canada, but was offset by the distributor inventory reduction during the first half of fiscal 2008. Sales to retailers grew in the low to mid-single digits.
Fourth quarter branded wine net sales decreased -5%, as the completion of the inventory reduction earlier in the year resulted in a timing shift for the company's U.S. wine sales. Under new shipment patterns, and after the peak holiday selling period in the third quarter, the company returned to the lower distributor inventory levels achieved at the end of the second quarter, which negatively impacted fourth quarter growth.
“There was positive depletion growth in the fourth quarter for North American wine and yes, there was a -5% decline in sales, but as we told you in the past that was primarily related to the change in shipment patterns as result of distributor inventory reduction. Historically, we shift more production in the fourth quarter than what will be our new shipment patterns. The sales, consequently, downturn was fully expected and not reflective of underlying sales trends,” said Rob.
He also remarked that the depletions from the 3rd quarter to the 4th quarter improved.
SPIRITS. Total spirits net sales increased 26%, primarily due to the March 2007 acquisition of Svedka, and grew 9% in organic net sales.
"Svedka continues delivering phenomenal sales performance and remains the fastest growing major imported premium vodka brand in the U.S.," said Sands.
ECONOMIC SLOWDOWN. The execs at Constellation do not think the current economic slowdown will have much of an impact on the premium and super-premium wine biz. Rob said that so far “it’s been business as usual,” but acknowledged there has been a shift from on-premise to off-premise.
“We do tend to see venue shifts in economic downturns. We’ve seen some shift from on-premise to off-premise, particularly a shift from off-premise to mass merchandisers away from chain and specialty wine accounts. In general, the wine business has been pretty strong.”
“In wine we continue to see much of the same trends...strong growth in the premium and premium-plus categories, especially in the super-premium category where we’re seeing very, very strong double digit growth, and strong trading up trends in the wine business. The very highest price tiers in the wine business may see some slight softness as result of the economy but basically that’s immaterial to the wine business as a whole.”
“We don’t anticipate that these categories should show any different momentum then they have in the past. Our acquisitions in general are performing extremely well and have added a lot of value to the company.”
MONDAVI BRANDS. Premium and super-premium wines are apparently doing well, but what about the Mondavi brands? As one analyst pointed out, the Mondavi brands suffered during the last recession roughly five years ago. Rob said, however, that things have changed since then, most notably the California harvest.
“I think the Mondavi brands are really strong brands and have even gotten stronger since that time. Our having acquired them and our execution against those brands has been superlative and we have strengthened those brands...brands like Woodbridge grew 6% last year. I can tell you right now that we would not have conservatively estimated that the brand would have grown at that rate but we were very pleased with the way it’s been performing,” said Rob.
“In the time period that you’re citing, there is a big factor between then and now. There was a big oversupply of grapes at that particular time that created some of the phenomenon in the marketplace like Two Buck Chuck, and we don’t have the same level of marginal players that we had in that timeframe...we also now have the strongest organization in the industry selling and marketing the Mondavi brands..”
UK AND AUSTRALIA. As Constellation as said in the past, the UK and Australian business continue to be impacted by pricing pressures driven by the large grocery retailers, Australian wine over-supply and U.K. duty increases. Due to these competitive pressures, the company's profitability in the U.K. and Australia businesses has decreased over the past few years.
Sands said the company believes “in the long-term value of both of these businesses, and are confident we are taking the right measures to improve operating efficiencies and our competitive position.” He also expects things to get better in fiscal 2009and beyond.
With that said, cfo Bob Ryder stated later in the call that problems with Australia were not anticipated when acquiring Hardy Wine Co. several years ago.
“The Hardy acquisition was a unique thing...the profits from Australian is a lot less then what we expected when we acquired Hardy.”
“The situation with Australian and the UK is a very unique set of circumstances...its bottomed out, we’re pretty optimistic at this stage that there’s only upside opposed to downside, and we’re talking about 10% of our EBIT. Its importance has greatly diminished...if you look at those factors, we’re pretty optimistic as we move forward,” said Rob. “Nature has helped us a little this year because of the low harvest in New Zealand, Australian ad the US as well.”
The company also said they do not anticipate impairment issues with any other acquisition.
ACQUSITION PROSPECTS. When asked whether there were any acquisitions on the horizon, particularly on the heels of Pernod buying V&S, Rob kept things pretty general:
“We’re pretty focused on optimizing our existing business and generating efficiencies...acquisitions remain a part of our strategy. So we won’t rule out acquisitions at this point...we are very well positioned for the future.”
“If it makes sense to dispose of anything and there’s a buyer and the right price can be attained, that’s always a possibility,” he continued.
VINCOR CANADA ACQUIRES MEDALLION WINE MARKETING
Vincor Canada today acquired the business of Medallion Wine Marketing, Inc., its affiliated company in Western Canada. Terms of the transaction were not disclosed.
As a result of the acquisition, Vincor Canada will assume direct responsibility for the distribution and sale in Western Canada of the wines of its affiliated companies, including Robert Mondavi, Hardys and Nobilo. Vincor will also become the western distributor for its sister company, Constellation Spirits.
Additionally, Vincor Canada will become the distributor for Quails’ Gate and CedarCreek VQA estate wineries from the Okanagan in the provinces of British Columbia, Alberta, Manitoba and Saskatchewan. Quails’ Gate Estate Winery remains owned and operated by the Stewart family. CedarCreek Estate Winery remains owned and operated by the Fitzpatrick family.
JACK DANIEL’S NAMES NEW MASTER DISTILLER
Jeff Arnett was named master distiller at the Jack Daniel Distillery at Lynchburg, Tenn., on Wednesday (April 2). He succeeds his mentor for the past seven years, Jimmy Bedford. The 41-year-old Arnett becomes just the seventh master distiller of Jack. Bedford retired last month after a 40-year career at Jack Daniel's, the last 20 as master distiller in which he became the promotional face behind the product.
WINE & SPIRITS CONTRIBUTE BILLIONS TO THE ECONOMY
The wine and spirits industry contributes over $137 billion to the U.S. economy every year, including more than 1.1 million jobs that pay almost $71 billion in wages, according to an economic study commissioned by the WSWA. For every dollar spent on wholesaling, according to the study, the economy realizes $1.41 in total value.
“Unlike countries without an independent wholesaler tier, the U.S. system is explicitly designed to prevent a black or gray market and keep all transactions for beverage alcohol in the U.S. on the books,” said ceo Craig Wolf.
View the entire study at www.wswa.org.
WSD BRIEF:
COLORADO LAWMAKERS VOTE NOT TO RAISE TAXES on beer, wine and spirits.
The House Finance Committee voted 9-2 Wednesday (April 2) against House Bill 1341, which would have raised taxes 2%. The measure would have also required the approval of Colorado voters this fall. Colorado has the lowest taxes on alcohol sales of any state in the country that taxes beer, wine and spirits, according to local reports.
Until tomorrow, Megan
“I finally figured out the only reason to be alive is to enjoy it.”
Rita Mae Brown
--------- Sell Day Calendar ----------
Today's Sell Day: 3
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0
posted at 12:10 PM
<< Home