Foolish Forecast: It's Not in the Stars for Constellation

Wine and spirits distributor Constellation Brands (NYSE: STZ) will report second-quarter 2008 financial results tomorrow. Will it be starstruck or a shooting star?

What analysts say:

• Buy, sell, or waffle? Eleven of the 14 analysts covering Constellation say to hold onto your wine glasses, while two say it's OK to drink more heartily. Only one says "none for the road," with a sell rating.
• Revenue. Sales are expected to fall steeply at the distributor, down 38% to $878.8 million.
• Earnings. That should lead to a 26% drop in profits, down to $0.32 per share.

What management says:
The cloudy state of the international wine market continues to fog Constellation's business, as an oversupply in Australia has flooded the wine market, particularly in the U.K. As it works down distributor inventories here at home and tries to revive the wine business across the pond, Constellation's prospects for improvement remain marginal.

Further complicating its strategy will be an accounting change it undertook in relation to its acquisition of Crown Imports, producer of Corona beer. While the long-term trend should work out for Constellation in its bid to compete with Anheuser-Busch (NYSE: BUD) and Molson Coors (NYSE: TAP), right now, the distributor's earnings will take a hit.

What management does:
Despite participating in the hot tequila market, Constellation is nowhere near Diageo (NYSE: DEO), which owns 43% of the market, or Fortune Brands (NYSE: FO). Wine has been the company's hallmark, with its Robert Mondavi and Ravenswood wines, but the industry is facing a glut. Even its attempts to spread itself out to other areas, like its acquisition of SVEDKA vodka, aren't yet enough to offset the souring of the wine segment.

One Fool says:
Constellation is a smaller industry player, regardless of the market it's in. It has tried to acquire its way to growth, but that's created too many moving parts to get a handle on any long-term trends. Demand for wine in the U.S. remains strong, but it will take some heady efforts for the company to gain market share or achieve the high single-digit growth rates management has set for itself.

It currently trades at a premium on a trailing-12-month P/E basis to all its rivals (except for Brown-Forman (NYSE: BF-B)), all of whom have stronger brands, stronger returns, and seemingly better prospects. I'd wait for more clarity from its Crown Imports and Matthew Clark acquisitions before sipping from this glass.

Related Foolishness:

• No Wine-ing from Constellations Brands
• Foolish Forecast: Stars Falling From Constellation
• Clouds Over Constellation