Foolish Forecast: Constellation's Intoxicating Quarter

Wine and spirits distributor Constellation Brands (NYSE: STZ) will report fourth-quarter 2008 financial results tomorrow. Strap on your beer goggles, and let's get a closer look at what to expect.

What analysts say:

• Buy, sell, or waffle? Three-quarters of the 12 analysts covering Constellation are saying "no mas," rating it a hold. Only two have ordered up another via buy ratings, while one says he'll have none for the road, recommending a sell.
• Revenue. Sales are expected to fall 23% from last year, down to $877.4 million.
• Earnings. Analysts are expecting profits to reach the bottom of the barrel at $0.25, a 29% decline from last year.

What management says:
Constellation has been positioning itself as the premiere premium wine distributor. By adding the Clos du Bois cellar of wines to its already prestigious portfolio in January, Constellation is expecting to grab more high-end market share in the U.S. That should help offset lingering weakness in the U.K. and Australia.

Premium brands are also on the minds and lips of managers in the spirits segment. Both the Svedka and Effen vodka acquisitions give Constellation top-shelf names. French distributor Pernod Ricard beat out Diageo (NYSE: DEO) and Fortune Brands (NYSE: FO) for the AB Vin & Spirit operations, which includes the popular Absolut vodka.

What management does:
With an economy mired in a slump, though, the company may find that consumers opt for ripple instead of wine to save a few bucks. With the glut of wines still wearing down international operations, the formerly improving margins may now fall flat.

One Fool says:
Last quarter found Constellation changing the way it accounts for both imported beer and its Matthew Clark joint venture. It now uses the equity accounting method, which shows only the profits earned from the part of the joint ventures it owns, while removing sales. That change will still be distilling through the financial statements this year, and comparisons will be more difficult to make, at least on the surface. The apparent weakness ought to give investors the opportunity to find better entry points.

The stock currently trades at a discount to Diageo and Brown-Forman (NYSE: BF-B), and is valued more closely to Fortune Brands, which operates more like a mini-conglomerate with a portfolio consisting of liquor, golf balls, kitchen cabinets, and the like. With a more refined taste, I think Constellation represents the better bet here.

Related Foolishness:

• No Wining From Constellation: Fool by Numbers
• Absolut-ly French, Absolut-ly Expensive
• Constellation Uncorks Profits