One of the dangers naturally acquisitive companies face is that their new purchases may not integrate well with the existing business. When Constellation Brands
Constellation's second-quarter earnings report, however, shows the acquisition is going smoothly thus far, with sales jumping 32% year over year. More importantly, sales were still up by 9% when factoring out the Hardy results and a favorable currency impact. That compares well with CEO Richard Sands' long-stated target of 15% overall growth -- with half from acquisitions and half from organic growth.
Though still in a "challenging environment," Constellation is also showing off its power by planning a third price increase in the last four years for its Mexican beer portfolio, which includes Corona, Pacifico, and Modelo Especial.
A double whammy of softening consumer demand for wine products and a price-lowering grape glut has made for a tough market over the past year or so, but Constellation has held up well. Sands believes conditions will improve over the next 12 to 24 months, and said in yesterday's conference call (transcript provided by CCBN StreetEvents), "The picture will brighten even more for those companies who have managed to increase brand value during these tough times."
If Constellation is one of those companies, as Sands believes, its price-to-free cash flow of 17 (based on 2003 full-year estimates) seems rather modest.
Rex Moore owns shares of Constellation Brands.