Constellation Beats Expectations
Constellation reported better than expected first quarter earnings, with net sales benefiting from price increases in domestic and international markets and improved mix by acquiring brands like Clos du Bois and Wild Horse, while disposing of the lower-margin Almaden and Inglenook wines. In addition, the overlap of the U.S. distributor wine inventory reduction, which was completed in the first two quarters of 2008, provided additional operating leverage. Shares were up almost 6% in early morning trading.
U.S. WINE SHOWS STRONG MOMENTUM. For North America, branded wine organic net sales on a constant currency basis increased 28%.
“Our North America wine business turned in a strong performance. In the U.S., Robert Mondavi wines, Kim Crawford, Simi, Estancia and Franciscan all registered double-digit market growth for the first quarter,” said Constellation ceo Rob Sands.
As Constellation premiumizes its wine business, value and premium wine mix has changed dramatically in IRI channels, said Rob. Value wine brands constitute 30% on a volume basis, while premium wines make up 70%. On a dollar basis, value wine is 15% and premium wine is 85%.
Growth in the U.S. premium wine business is very healthy, with dollar sales up 7% in the 12 week IRI data to May 18. The super-premium plus segment ($8 and above) grew 12% in dollar sales in the 12-week period, while total wine grew 5%.
All of Constellation’s brands in the super-premium segment (including Robert Mondavi, Kim Crawford and Estancia) posted double digit market growth in the 12 weeks.
AUSTRALIA AND UK REMAIN HEALTHY. The Australian and UK wine markets remained healthy in the first quarter, with supply in line with demand
The 2008 grape harvest is complete in Australia and predicted to be 1.7 million tons vs. 1.5 million tons last year. The cost of grapes is up significantly due to the drought conditions, which forced growers to buy much more water than usual. Grape volumes are also high. High costs coupled with high volumes lend itself to a unique situation in Australia. As a result, Rob said there will not be an abundance of bulk wine this year.
Rob reminded investors that the Australian wine business only constitutes a small part of Constellation’s portfolio.
SVEDKA SHOWS STELLAR GROWTH. Total spirits net sales increased 9% for the quarter, primarily due to strong growth of the Svedka Vodka brand. Svedka showed strong double digit sales driven by new distribution points and promotion activity
“Svedka turned in another stellar quarter of growth, and other spirits brands including Black Velvet, Effen, Ridgemont Reserve 1792, Caravella and Meukow also performed very well,” stated Sands. “In particular, we are very pleased with the apparent impact from SVEDKA’s ‘Join the Party’ election year marketing campaign...”
ROB SANDS ON ECONOMIC IMPACT. “There have been some venue shifts from on-premise consumption to off-premise consumption. Within the off-premise channel we are also seeing a shift to discount retailers including large mass merchants and wholesale club stores. We remain generally insolated from the impact of these venue shifts because we sell directly to the distributor tier in the U.S. and they march it regardless of the venues and consumption.”
Wine is currently growing at a greater rate than beer and spirits. Premium spirits grew 4% on a value basis for both 12 and 52 week periods to May 18 (according to IRI), while imported beer grew 2-3% for both time frames.
Rob said beverage alcohol products are not expected to be as significantly impacted by the economy as other consumer discretionary goods.
PRICE INCREASES IN THE QUARTER. Constellation took a 3% price increase in the U.S. wine business. As a result, wine took a bit of a volume hit and will take awhile to build back up, said Rob.
Spirits also took pricing in the first quarter. Rob said that because they have a bit more cost inflation, they are looking to take some additional pricing later in the year.
Prices increases for wine were taken in the UK and Australia as well, although UK price increases are done for the year.
Pretty significant pricing was taken in Australia (5-7%) with more expected later this year because grape costs are high as we mentioned earlier.
Rob said the company is trying to balance improving margins and using pricing to do that. He said supply for grapes is in line with demand worldwide “so we think we are doing the right thing” at the right time.
He said Club du Bois specifically took a volume hit after its previous owners increased pricing 6-7%, which he said is a pretty significant price increase for a wine brand.
“But as we get further past that increase we see the volumes starting to recover and market share recover.”
He remarked that competitors are taking similar pricing in pretty much all geographies “as they are seeing the same supply/demand that we are seeing.”
WORD FROM ANALYSTS. Here’s an excerpt of a research note from Bill Pecoriello of Morgan Stanley:
“We remain concerned about the quality of the beat as data suggests that the US wine industry is slowing and Bud Light Lime is negatively impacting the growth of Corona.”
Says Kaumil Gajrawala of UBS:
“Given our expectations for slowing sprits volume growth in the U.S., we believe STZ may need to accelerate marketing spending through CY08 to drive volume. For wine, we have not yet seen any macro-economic impact, and we continue to see trading up.”
FORTUNE BRANDS LOWERS OUTLOOK
Fortune Brands lowered its earnings outlook yesterday amid a weaker than expected May, deteriorating consumer sentiment in the U.S. and the unexpected Australian tax increase on RTDs. The news sent Fortune’s shares down 5.5% to $59 in after-hours trading.
Says Chief Bruce Carbonari:
"The environment has become more challenging for our brands and the second quarter is shaping up to be more difficult than we had anticipated. April was a solid month that tracked with our expectations, followed by softer-than-anticipated results in May. We've seen continued softness in June and it's now clear that we will not make up the May shortfall.”
"With the rapid spike in gasoline prices and the decline in consumer confidence, we're seeing American consumers pull back. At the same time, the correction in the U.S. housing market has intensified...trading up to premium spirits brands continues in the U.S. but at a more moderate.”
"Meanwhile, higher costs for commodities such as petroleum-based materials, glass and steel are adding to the pressures facing manufacturers."
As a result, the company now expects to generate diluted earnings per share before charges/gains for the second quarter that is down at a high-teens-to-mid-20s percentage rate compared to diluted EPS of $1.51 before charges/gains for continuing operations in the year-ago quarter. The company's previously announced target for the second quarter had been for diluted EPS before charges/gains to be down at a high-single-digit-to-mid-teens percentage rate.
For the full year 2008, the company now expects to generate diluted EPS before charges/gains that is down at a high-single-digit-to-high-teens percentage rate compared to $5.06 in 2007. The company's previous full-year target was for diluted EPS before charges/gains to be flat to down at a high-single-digit percentage rate versus 2007's results.
Fortune says it continues to expect that results in the second half of 2008 will be better than the first half.
NEW REPORT SHOWS CALORIE CONTENT IN ALCOHOL
A new report, called Alcohol Facts, has calorie and carb information on some of the biggest wine, beer and spirits brands, according to an article in US News & World Report. The report was published by the Food Policy Institute at the Consumer Federation of America.
For example, a standard serving of Smirnoff Ice has 241 calories, Seagram’s Gin has 120 calories per 1.5-ounce serving, and Beringer Chardonnay and Gallo/Carlo Rossi Cabernet Sauvignon carry 120 calories per 5 ounce-glass.
To help consumers, the federation developed a side-by-side comparison chart that shows the alcohol content, calories and carbohydrate content of the 26 best-selling alcohol products.
"In the long term, we want to get this information on alcohol packages in a standardized format," said Chris Waldrop, director of the Food Policy Institute. "With that information right there, consumers can make informed decisions."
WSD BRIEFS:
LION NATHAN WINS CASE AGAINST E&J GALLO. A Federal Court ruled in favor of Lion Nathan to use the ‘Barefoot’ trademark to market one of its newest beers in Australia. E&J Gallo, which uses the ‘Barefoot’ trademark in the U.S., had sought an injunction against Lion Nathan following its January launch of Barefoot Radler. The court also ordered Gallo to deregister its barefoot trademark in Australia because it had not been used between May 2004 and May 2007.
PERNOD RICARD USA HAS LAUNCHED PERNOD ABSINTHE, a revival of Pernod Fils, said the company. The launch comes months after the Alcohol and Tobacco Bureau approved the sale of absinthe in the U.S. following a 92 year ban.
GEMINI SPIRITS & WINE WILL DISTRIBUTE Gran Gala, Limonce, Stock Vermouths and Stock 84 Brandy in the U.S., effective September 1, 2008.
SUNDAY LIQUOR SALES GO INTO EFFECT TODAY IN COLORADO, making July 6th the first Sunday residents can buy liquor. Supermarkets and convenience stores are now pushing for legislation to allow them to sell full-strength beer.
PRINCE CHARLES IS USING ENGLISH WINE AS FUEL for his 38-year-old Aston Martin, a 21st birthday present from the Queen.
Until tomorrow, Megan
“The time to stop talking is when the other person nods his head affirmatively but says nothing.”
Henry S. Haskins
--------- Sell Day Calendar ----------
Today's Sell Day: 22
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
U.S. WINE SHOWS STRONG MOMENTUM. For North America, branded wine organic net sales on a constant currency basis increased 28%.
“Our North America wine business turned in a strong performance. In the U.S., Robert Mondavi wines, Kim Crawford, Simi, Estancia and Franciscan all registered double-digit market growth for the first quarter,” said Constellation ceo Rob Sands.
As Constellation premiumizes its wine business, value and premium wine mix has changed dramatically in IRI channels, said Rob. Value wine brands constitute 30% on a volume basis, while premium wines make up 70%. On a dollar basis, value wine is 15% and premium wine is 85%.
Growth in the U.S. premium wine business is very healthy, with dollar sales up 7% in the 12 week IRI data to May 18. The super-premium plus segment ($8 and above) grew 12% in dollar sales in the 12-week period, while total wine grew 5%.
All of Constellation’s brands in the super-premium segment (including Robert Mondavi, Kim Crawford and Estancia) posted double digit market growth in the 12 weeks.
AUSTRALIA AND UK REMAIN HEALTHY. The Australian and UK wine markets remained healthy in the first quarter, with supply in line with demand
The 2008 grape harvest is complete in Australia and predicted to be 1.7 million tons vs. 1.5 million tons last year. The cost of grapes is up significantly due to the drought conditions, which forced growers to buy much more water than usual. Grape volumes are also high. High costs coupled with high volumes lend itself to a unique situation in Australia. As a result, Rob said there will not be an abundance of bulk wine this year.
Rob reminded investors that the Australian wine business only constitutes a small part of Constellation’s portfolio.
SVEDKA SHOWS STELLAR GROWTH. Total spirits net sales increased 9% for the quarter, primarily due to strong growth of the Svedka Vodka brand. Svedka showed strong double digit sales driven by new distribution points and promotion activity
“Svedka turned in another stellar quarter of growth, and other spirits brands including Black Velvet, Effen, Ridgemont Reserve 1792, Caravella and Meukow also performed very well,” stated Sands. “In particular, we are very pleased with the apparent impact from SVEDKA’s ‘Join the Party’ election year marketing campaign...”
ROB SANDS ON ECONOMIC IMPACT. “There have been some venue shifts from on-premise consumption to off-premise consumption. Within the off-premise channel we are also seeing a shift to discount retailers including large mass merchants and wholesale club stores. We remain generally insolated from the impact of these venue shifts because we sell directly to the distributor tier in the U.S. and they march it regardless of the venues and consumption.”
Wine is currently growing at a greater rate than beer and spirits. Premium spirits grew 4% on a value basis for both 12 and 52 week periods to May 18 (according to IRI), while imported beer grew 2-3% for both time frames.
Rob said beverage alcohol products are not expected to be as significantly impacted by the economy as other consumer discretionary goods.
PRICE INCREASES IN THE QUARTER. Constellation took a 3% price increase in the U.S. wine business. As a result, wine took a bit of a volume hit and will take awhile to build back up, said Rob.
Spirits also took pricing in the first quarter. Rob said that because they have a bit more cost inflation, they are looking to take some additional pricing later in the year.
Prices increases for wine were taken in the UK and Australia as well, although UK price increases are done for the year.
Pretty significant pricing was taken in Australia (5-7%) with more expected later this year because grape costs are high as we mentioned earlier.
Rob said the company is trying to balance improving margins and using pricing to do that. He said supply for grapes is in line with demand worldwide “so we think we are doing the right thing” at the right time.
He said Club du Bois specifically took a volume hit after its previous owners increased pricing 6-7%, which he said is a pretty significant price increase for a wine brand.
“But as we get further past that increase we see the volumes starting to recover and market share recover.”
He remarked that competitors are taking similar pricing in pretty much all geographies “as they are seeing the same supply/demand that we are seeing.”
WORD FROM ANALYSTS. Here’s an excerpt of a research note from Bill Pecoriello of Morgan Stanley:
“We remain concerned about the quality of the beat as data suggests that the US wine industry is slowing and Bud Light Lime is negatively impacting the growth of Corona.”
Says Kaumil Gajrawala of UBS:
“Given our expectations for slowing sprits volume growth in the U.S., we believe STZ may need to accelerate marketing spending through CY08 to drive volume. For wine, we have not yet seen any macro-economic impact, and we continue to see trading up.”
FORTUNE BRANDS LOWERS OUTLOOK
Fortune Brands lowered its earnings outlook yesterday amid a weaker than expected May, deteriorating consumer sentiment in the U.S. and the unexpected Australian tax increase on RTDs. The news sent Fortune’s shares down 5.5% to $59 in after-hours trading.
Says Chief Bruce Carbonari:
"The environment has become more challenging for our brands and the second quarter is shaping up to be more difficult than we had anticipated. April was a solid month that tracked with our expectations, followed by softer-than-anticipated results in May. We've seen continued softness in June and it's now clear that we will not make up the May shortfall.”
"With the rapid spike in gasoline prices and the decline in consumer confidence, we're seeing American consumers pull back. At the same time, the correction in the U.S. housing market has intensified...trading up to premium spirits brands continues in the U.S. but at a more moderate.”
"Meanwhile, higher costs for commodities such as petroleum-based materials, glass and steel are adding to the pressures facing manufacturers."
As a result, the company now expects to generate diluted earnings per share before charges/gains for the second quarter that is down at a high-teens-to-mid-20s percentage rate compared to diluted EPS of $1.51 before charges/gains for continuing operations in the year-ago quarter. The company's previously announced target for the second quarter had been for diluted EPS before charges/gains to be down at a high-single-digit-to-mid-teens percentage rate.
For the full year 2008, the company now expects to generate diluted EPS before charges/gains that is down at a high-single-digit-to-high-teens percentage rate compared to $5.06 in 2007. The company's previous full-year target was for diluted EPS before charges/gains to be flat to down at a high-single-digit percentage rate versus 2007's results.
Fortune says it continues to expect that results in the second half of 2008 will be better than the first half.
NEW REPORT SHOWS CALORIE CONTENT IN ALCOHOL
A new report, called Alcohol Facts, has calorie and carb information on some of the biggest wine, beer and spirits brands, according to an article in US News & World Report. The report was published by the Food Policy Institute at the Consumer Federation of America.
For example, a standard serving of Smirnoff Ice has 241 calories, Seagram’s Gin has 120 calories per 1.5-ounce serving, and Beringer Chardonnay and Gallo/Carlo Rossi Cabernet Sauvignon carry 120 calories per 5 ounce-glass.
To help consumers, the federation developed a side-by-side comparison chart that shows the alcohol content, calories and carbohydrate content of the 26 best-selling alcohol products.
"In the long term, we want to get this information on alcohol packages in a standardized format," said Chris Waldrop, director of the Food Policy Institute. "With that information right there, consumers can make informed decisions."
WSD BRIEFS:
LION NATHAN WINS CASE AGAINST E&J GALLO. A Federal Court ruled in favor of Lion Nathan to use the ‘Barefoot’ trademark to market one of its newest beers in Australia. E&J Gallo, which uses the ‘Barefoot’ trademark in the U.S., had sought an injunction against Lion Nathan following its January launch of Barefoot Radler. The court also ordered Gallo to deregister its barefoot trademark in Australia because it had not been used between May 2004 and May 2007.
PERNOD RICARD USA HAS LAUNCHED PERNOD ABSINTHE, a revival of Pernod Fils, said the company. The launch comes months after the Alcohol and Tobacco Bureau approved the sale of absinthe in the U.S. following a 92 year ban.
GEMINI SPIRITS & WINE WILL DISTRIBUTE Gran Gala, Limonce, Stock Vermouths and Stock 84 Brandy in the U.S., effective September 1, 2008.
SUNDAY LIQUOR SALES GO INTO EFFECT TODAY IN COLORADO, making July 6th the first Sunday residents can buy liquor. Supermarkets and convenience stores are now pushing for legislation to allow them to sell full-strength beer.
PRINCE CHARLES IS USING ENGLISH WINE AS FUEL for his 38-year-old Aston Martin, a 21st birthday present from the Queen.
Until tomorrow, Megan
“The time to stop talking is when the other person nods his head affirmatively but says nothing.”
Henry S. Haskins
--------- Sell Day Calendar ----------
Today's Sell Day: 22
Sell days this month: 21
Sell days this month last year: 21
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 12:32 PM
<< Home