I'll drink to that! Constellation Brands
The usual suspects held down the distributor of Robert Mondavi wines and Corona beer: The U.K. wine industry has been drunk on a flood of cheap Australian imports that have hurt pricing, and the company's own inventory-reduction program here in the U.S. has not helped, either. Shrinking distributor inventories ended up denting an otherwise strong performance in Canada, so that overall branded wine net sales in North America were drained by 4% year over year.
Net sales for the quarter, which include the costs of excise taxes, fell 37% to $892.6 million, while profits spiked the keg at $0.35 a share, excluding one-time profits, down from $0.43 a year ago.
Although the report seems to suggest that Constellation has straightened its racks to make for a better future display, it also underscores why fellow Foolish commentator Ryan Fuhrman suggested that this was no elegant fluted glass that one could easily grasp. He recommended that investors sip elsewhere until the wine business shows more clarity.
As a cellar -- er, seller -- of popular wine brands including Mondavi and Ravenswood, Constellation has also been expanding its portfolio to include premium liquors such as SVEDKA vodka and Corona beer. While both have generated lots of sales (SVEDKA, for instance, helped total net sales for spirits rise 25% in the quarter), they weren't enough to offset the costs of Constellation's Crown Imports and Matthew Clark acquisitions. Couple that with competitive pressures in its wine division, and you have an explanation for why performance has appeared inebriated.
Branching out, though, might not be enough to gain market share from its rivals. Diageo
According to marketing trade publication Brandweek, beer sales for the year ended June 2 had grown 1.1% -- faster than the negligible 0.3% for spirits, but lower than the 2.7% seen in wine. Trends seem to suggest a move toward high-end names such as Corona and Boston Beer's
The current quarter's results were worth a toast, but we may still find it advantageous to stay on the wagon a while longer.
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Anheuser-Busch is a recommendation of Motley Fool Inside Value. Diageo is a recommendation of Motley Fool Income Investor. You won't be wine-ing as you sample our investing newsletter services free for 30 days.
Fool contributor Rich Duprey is always happy to raise a glass of Sam Adams Light, but he 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.
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