STZ.B Constellation Brands Inc

VICTOR, N.Y., April 9 /PRNewswire-FirstCall/ --

• Achieves comparable basis diluted EPS of $1.69 and reported basis diluted EPS of $0.45; results reflect tax rate benefits
• Generates strong free cash flow of $295 million
• Decreases debt approximately $600 million for the year
• Significantly improves cost structure during the year
• Provides fiscal 2011 outlook; projects comparable basis diluted EPS of $1.53 - $1.68 and reported basis diluted EPS of $1.36 - $1.51
• Projects fiscal 2011 free cash flow in the range of $350 - $400 million
• Board of Directors authorizes $300 million share repurchase program

Constellation Brands, Inc. (NYSE: STZ, ASX: CBR), the world's leading wine company, reported today its fiscal 2010 results and fiscal 2011 outlook.  

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"Given the lingering economic challenges throughout our key markets, I am pleased with our results for the year. We generated strong free cash flow, significantly reduced our debt and greatly improved our cost structure. Fiscal 2010 results reflect continued execution against key strategic goals, the most important of which is our U.S. distributor consolidation effort," said Rob Sands, president and chief executive officer, Constellation Brands.  "As our fiscal year came to a close, we worked with our distributors to reduce their fourth quarter inventory levels while securing incremental distributor investments behind our brands. This action reduced fourth quarter sales and profits for our U.S. wine business. Overall, we believe this effort better positions the company and our distributors to drive profitable, organic growth into the future."

*Definitions of reported, comparable, organic and constant currency, as well as reconciliations of non-GAAP financial measures, are contained elsewhere in this news release.

** Hereafter referred to as "equity earnings."

NM= Not Meaningful

Fiscal 2010 Net Sales Commentary

Reported consolidated net sales decreased eight percent due primarily to the impact of the value spirits divestiture and the unfavorable impact of year-over-year currency exchange rate fluctuations. Organic constant currency net sales increased one percent.

Branded wine organic net sales on a constant currency basis decreased one percent which included a three percent decrease in North America partially offset by increases of seven percent in Europe and four percent in Australia/New Zealand. The sales increase in Europe was primarily due to volume growth of lower priced products.

Total spirits organic net sales increased 19 percent for the year, led by a 38 percent gain for SVEDKA vodka.  "Sales of SVEDKA vodka continue to experience strong momentum," said Sands. "The brand recently launched the first-ever SVEDKA television advertising campaign which marks an exciting milestone and serves as another example of how SVEDKA is setting itself apart in its quest to bring future fun to vodka lovers everywhere."

Fiscal 2010 Operating Income, Net Income, Diluted EPS Commentary

Wines segment operating income decreased $37 million versus the prior year. This is primarily due to the divestiture of the value spirits business, the decrease in U.S. branded wine sales and a decrease in operating income from the U.K. and Australian businesses, partially offset by savings from cost reduction initiatives.

Constellation's equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $222 million, a decrease of 12 percent from the prior year.  For fiscal 2010, Crown Imports generated net sales of $2.3 billion, a decrease of six percent, and operating income of $444 million, a decrease of 12 percent. Net sales for Crown were impacted primarily by volume declines. Operating income for Crown decreased primarily due to lower volumes, negative mix and a contractual cost increase.

"While the on-premise and convenience store channels were impacted by a challenging economic environment throughout the year, Crown experienced import category market share gains for the year in the grocery channel as they  executed targeted promotional and media support programs and introduced new packages for consumers to enjoy at a wide variety of venues and price points," said Sands.

For fiscal 2010, pre-tax restructuring charges, acquisition-related integration costs and unusual items totaled $275 million, compared to $658 million for the prior year.  

Interest expense totaled $265 million, a decrease of 18 percent. The decrease was primarily due to lower average borrowings during the year.

"We continue to reduce leverage and improve our credit profile as strong free cash flow generation and proceeds from asset sales drove a $600 million decrease in our debt level for fiscal 2010," said Bob Ryder, chief financial officer, Constellation Brands. "Additionally, in the fourth quarter we successfully amended our senior credit facility, extended a portion of our term loan obligations and prepaid a $250 million 8 1/8 percent senior subordinated note."

Free cash flow for the year totaled $295 million compared to $378 million in the prior year. The decrease was due in part to a $65 million tax payment related to the sale of the value spirits business. For fiscal 2011, the company is targeting free cash flow in the range of $350 - $400 million.

The comparable basis effective tax rate for the year was 30 percent which reflects the favorable outcome of various tax items, and compares to a 36 percent rate for the prior year.

Fourth Quarter 2010 Net Sales Commentary

Reported consolidated net sales decreased four percent due primarily to the impact of the value spirits divestiture, partially offset by the favorable impact of year-over-year currency exchange rate fluctuations. Organic constant currency net sales decreased two percent.

Branded wine organic net sales on a constant currency basis decreased six percent versus last year which included a 12 percent decrease in North America and a 23 percent increase in Europe. Net sales for Australia/New Zealand were even with the prior year quarter.

The fourth quarter net sales decrease in North America primarily reflects the impact of decreasing inventory positions at U.S. distributors. The sales increase in Europe was primarily due to volume growth and a favorable comparison versus fourth quarter fiscal 2009. Total spirits organic net sales increased 19 percent for the quarter.

Fourth Quarter 2010 Operating Income, Net Income, Diluted EPS Commentary

Wines segment operating income decreased $22 million versus the prior year fourth quarter. This is primarily due to the decrease in U.S. branded wine sales.

Constellation's equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $41 million, a decrease of 11 percent from the prior year fourth quarter.  For fourth quarter 2010, Crown Imports generated net sales of $419 million, a decrease of four percent, and operating income of $82 million, a decrease of 12 percent. Net sales for Crown were impacted primarily by volume declines driven by the challenging economic conditions. Operating income for Crown decreased due to lower volume, negative mix and a contractual cost increase.

For fourth quarter 2010, pre-tax restructuring charges, acquisition-related integration costs and unusual items totaled $125 million, compared to $468 million for the prior year fourth quarter.  During the fourth quarter, the company recorded $103 million of non-cash impairment charges related to intangible assets in connection with the company's annual impairment testing, primarily related to its Australian business.

Interest expense totaled $63 million, a decrease of 13 percent. The decrease was primarily due to lower average borrowings during the quarter.

The comparable basis effective tax rate for the fourth quarter was negative 11 percent which reflects the favorable outcome of various tax items, and compares to a 41 percent rate for the prior year quarter.

Common Share Repurchase Authorization

Constellation Brands' Board of Directors has authorized the repurchase of up to $300 million of the company's common stock. It is the company's intent to implement an accelerated stock buyback transaction when appropriate. "We believe repurchasing Constellation shares represents good value and is an appropriate investment for us at this time. Due to our continued strong cash flow generation and successful deleveraging and refinancing efforts, we believe we can redeploy a portion of free cash flow to repurchase stock while we continue to reduce debt," said Ryder.

Summary

"We have accomplished a great deal throughout the last year and remain focused on executing a strategy based on achieving profitable, organic growth, generating strong free cash flow and improving return on invested capital.  Our guidance for fiscal 2011 reflects a number of factors including an uncertain economic environment, continuing pressures on the Crown joint venture and the Australian and U.K. operations and incremental investments in marketing and a new technology platform," said Sands. "We believe we are well positioned to execute on our business strategy for fiscal 2011."

Outlook

The table below sets forth management's current diluted EPS expectations for fiscal 2011 compared to fiscal 2010 actual results, both on a reported basis and a comparable basis.  

Full-year fiscal 2011 guidance includes the following current assumptions but excludes any impact from any repurchases of the company's common stock:

• Interest expense: approximately $210 - $220 million
• Tax rate: approximately 35 percent
• Weighted average diluted shares outstanding: approximately 224 million
• Free cash flow: $350 - $400 million

Conference Call

A conference call to discuss fourth quarter and full year fiscal 2010 results and fiscal 2011 outlook will be hosted by President and Chief Executive Officer Rob Sands and Executive Vice President and Chief Financial Officer Bob Ryder on Fri., April 9, 2010 at 10:30 a.m. (eastern).  The conference call can be accessed by dialing +973-935-8505 beginning 10 minutes prior to the start of the call.  A live listen-only webcast of the conference call, together with a copy of this news release (including the attachments) and other financial information that may be discussed in the call will be available on the Internet at Constellation's Web site: www.cbrands.com under "Investors," prior to the call.

Explanations

Reported basis ("reported") operating income, net income and diluted EPS are as reported under generally accepted accounting principles.  Operating income, net income and diluted EPS on a comparable basis ("comparable"), exclude restructuring charges, acquisition-related integration costs and unusual items.  The company's measure of segment profitability excludes restructuring charges, acquisition-related integration costs and unusual items, which is consistent with the measure used by management to evaluate results.

The company discusses additional non-GAAP measures in this news release, including constant currency net sales, organic net sales, comparable basis EBIT and free cash flow.

Tables reconciling non-GAAP measures, together with definitions of these measures and the reasons management uses these measures, are included in this news release.

About Constellation Brands

Constellation Brands is the world's leading wine company that achieves success through an unmatched knowledge of wine consumers, storied brands that suit varied lives and tastes and talented employees world-wide. With a broad portfolio of widely admired premium products across the wine, beer and spirits categories, Constellation's brand portfolio includes Robert Mondavi, Hardys, Clos du Bois, Blackstone, Arbor Mist, Estancia, Ravenswood, Jackson-Triggs, Kim Crawford, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka.

Constellation Brands (NYSE: STZ and STZ.B; ASX: CBR) is an S&P 500 Index and Fortune 1000® company with more than 100 total brands in our portfolio, sales in about 150 countries and operations in approximately 45 facilities. The company believes that industry leadership involves a commitment to our brands, to the trade, to the land, to investors and to different people around the world who turn to our products when celebrating big moments or enjoying quiet ones. We express this commitment through our vision: to elevate life with every glass raised. To learn more about Constellation Brands and its product portfolio visit the company's web site at www.cbrands.com.

Forward-Looking Statements

The statements made under the heading Outlook, and all statements other than statements of historical facts set forth in this news release regarding Constellation's business strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management, as well as information concerning expected actions of third parties, are forward-looking statements (collectively, the "Projections") that involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the Projections.

During the current quarter, Constellation may reiterate the Projections.  Prior to the start of the company's quiet period, which will begin at the close of business on May 28, 2010, the public can continue to rely on the Projections as still being Constellation's current expectations on the matters covered, unless Constellation publishes a notice stating otherwise.  During Constellation's "quiet period," the Projections should not be considered to constitute the company's expectations and should be considered historical, speaking as of prior to the quiet period only and not subject to update by the company.

The Projections are based on management's current expectations and, unless otherwise noted, do not take into account the impact of any future acquisition, merger or any other business combination, divestiture, restructuring or other strategic business realignments, financing or share repurchase that may be completed after the date of this release. The Projections should not be construed in any manner as a guarantee that such results will in fact occur.

In addition to the risks and uncertainties of ordinary business operations, the Projections of the company contained in this news release are subject to a number of risks and uncertainties, including:

• realization of expected synergies from acquired businesses;
• completion of various portfolio actions; implementation of consolidation activities and actual U.S. distributor transition experience;
• achievement of all expected cost savings from the company's various restructuring plans and realization of expected asset sale proceeds from the sale of inventory and other assets;
• accuracy of the bases for forecasts relating to joint ventures and associated costs and capital investment requirements;
• restructuring charges, acquisition-related integration costs and other one-time costs associated with integration and restructuring plans may vary materially from management's current estimates due to variations in one or more of anticipated headcount reductions, contract terminations, costs or timing of plan implementation;
• raw material supply, production or shipment difficulties could adversely affect the company's ability to supply its customers;
• increased competitive activities in the form of pricing, advertising and promotions could adversely impact consumer demand for the company's products and/or result in lower than expected sales or higher than expected expenses;
• general economic, geo-political and regulatory conditions, prolonged downturn in the economic markets in the U.S. and in the company's major markets outside of the U.S., continuing instability in world financial markets, or unanticipated environmental liabilities and costs;
• changes to accounting rules and tax laws, and other factors which could impact the company's reported financial position or effective tax rate;
• changes in interest rates and the inherent unpredictability of currency fluctuations, commodity prices and raw material costs; and
• other factors and uncertainties disclosed in the company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended Feb. 28, 2009,  which could cause actual future performance to differ from current expectations.