Liquor and wine distributor Constellation Brands (NYSE:STZ) will report first-quarter 2008 financial results on Thursday. Let's belly up to the bar and see what's being served.

What analysts say:

  • Buy, sell, or waffle? Of the 14 analysts covering Constellation, 11 say they can hold their liquor, while two want to buy another round. One says he's had enough and rates it a sell.
  • Revenues. Sales are expected to fall 23% this quarter to $885.8 million as Constellation struggles with international wine sales.
  • Earnings. Profits are also expected to fall, being cut nearly in half from $0.31 a share last year down to $0.16 a stub this time around.

What management says:
It's not that Europe is becoming a continent of teetotalers, but Constellation's wine business is still cloudy, particularly in the U.K., where on a constant currency basis -- and without the addition of its Vincor acquisition -- sales declined 6%. That calls for a stiff drink. Fortunately, Constellation is moving into the premium-liquor market and has added a number of products that should allow it to compete more effectively against Brown-Forman (NYSE:BF-B) and Diageo (NYSE:DEO). For one, it recently acquired SVEDKA vodka, which showed 60% growth last year.

Yet it's with tequila that the sun is rising these days. According to Nielsen Scantrack & LiquorTrack data, tequila sales grew 12.5% in 2006 -- the largest of any alcoholic beverage and almost three times as much as spirit-sales growth overall. Constellation sells three brands of tequila, but for now, they all trail Diageo's Jose Cuervo, Sauza from Fortune Brands (NYSE:FO), and Brown-Forman's recently acquired Casa Herradura.

What management does:
With wines souring and premium liquors just getting started, Constellation's next hope is beer. Earlier this year, it started Crown Imports, which will exclusively import under one roof the Corona beer brands. While Corona's enduring popularity should help it challenge Anheuser-Busch (NYSE:BUD) and Molson Coors (NYSE:TAP), right now the start-up costs associated with it are eating into margins. Interestingly, the maker of Corona and the partner in the joint venture with Constellation is Grupo Modelo, which is 50% owned by Anheuser-Busch.

Margin

02/06

05/06

08/06

11/06

02/07

Gross

29.1%

29.3%

29.1%

29.3%

29.8%

Operating

16.0%

16.7%

15.8%

16.2%

16.6%

Net

7.1%

7.2%

6.6%

6.2%

6.4%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Having positioned itself primarily in the wine market, Constellation has seemingly backed a horse in a contracting market, or at least in one that sports broad competition from major distributors and regional houses alike. The trend in alcoholic-beverage sales is in tequila, and Constellation may have to consider repositioning its Montezuma, El Toro, and Capitan brands if it wants to nibble away at Diageo's 43% market share in that area. The Corona reorganization holds the most promise for me for the immediate future, even if it does bring greater profits to Bud's parent at the same time.

Related Foolishness:

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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.