Canandaigua Brands Announces Third Quarter Results

Fairport, NY, December 22, 1998 -- Canandaigua Brands, Inc. (NASDAQ: CBRNA and CBRNB), today reported its results for the quarter ended November 30, 1998 ("Third Quarter 1999"). Net income for Third Quarter 1999 was $19.6 million, or $1.07 per share on a diluted basis, versus net income of $17.6 million, or $0.92 per share, in the same quarter a year ago ("Third Quarter 1998"), increases of 12 percent and 16 percent, respectively. Net sales of $376 million in Third Quarter 1999 increased by 16 percent over net sales of $323 million in Third Quarter 1998.

Richard Sands, President and Chief Executive Officer, said, "We had a very impressive quarter across our entire branded business, with strong sales growth as well as cost improvements. We took advantage of gross profit gains to invest more heavily in brand building, particularly for our key imported beer and wine brands. Corona has never been stronger, and our new and unique Arbor Mist wines have been one of our most successful introductions."

Mr. Sands added: "We have worked very hard to get our business to the level of performance we experienced in this quarter, and we have significantly enhanced our future prospects with the December 1, 1998, acquisition of Matthew Clark plc, with its leadership positions in the wine and cider markets and drinks wholesaling to the on-premises trade in the United Kingdom."

Third Quarter Highlights

  • Net income increased 12 percent to almost $20 million
  • Earnings per share grew 16 percent to $1.07 versus $0.92 in Third Quarter 1998
  • Branded products volume grew 21 percent to 21 million cases
  • Net sales increased 16 percent to $376 million
  • Gross profit margin reached 30.6 percent

    Unit volume of the Company's beer, wine and spirits products all increased in Third Quarter 1999. Beer volume growth, led by Corona and Modelo Especial, exceeded 39 percent. The Company's new products and marketing initiatives for its core wine brands resulted in a 10 percent increase in wine volume. Canandaigua's share of the retail wine market as measured by Nielsen data reached 16.5 percent for the quarter on the strength of a 13 percent increase in retail sales. Spirits volume increased by 3 percent in the quarter, with impressive gains by Paul Masson Grande Amber brandy, Canadian LTD and Crystal Palace vodka.

    Gross profit in Third Quarter 1999 reached $115 million, a 17 percent increase over the prior year. The improvement was due primarily to the additional sales volume, as well as unit cost improvements for the Company's wine brands. The reduced unit costs led to an improvement in the Company's gross profit margin in Third Quarter 1999 to 30.6 percent from 30.4 percent as reported in Third Quarter 1998.

    The increase in gross profit was partially offset by higher selling, general and administrative expenses, which reached $74 million as compared to $60 million in Third Quarter 1998. The increase was due to advertising costs associated with the introduction of new wine brands and increased imported beer sales, and higher promotion costs associated with programs implemented to improve the Company's share of the wine market and to support the continued growth of imported beer sales.

    As a result of the sales growth, the Company's operating income increased by 9 percent to $41 million in Third Quarter 1999. Interest expense declined by one percent, while diluted average shares outstanding decreased by four percent in Third Quarter 1999 from a year ago, leading to net income and earnings per share of $20 million and $1.07, respectively, representing increases of 12 percent and 16 percent, respectively, versus Third Quarter 1998.

    On November 3, 1998, Canandaigua Brands announced an offer to purchase all of the outstanding shares of Matthew Clark plc, a leading producer and marketer of beverage alcohol products in the United Kingdom. On December 1, 1998, the Company removed all conditions related to the offer and assumed effective control of Matthew Clark. As of December 14, 1998, more than 95 percent of the shares of Matthew Clark plc had been tendered and the Company initiated procedures for the compulsory tender of the remaining shares.

    The operating results of the Matthew Clark business will be reflected in the Company's earnings for the three months ending February 28, 1999 ("Fourth Quarter 1999"). In conjunction with financing the acquisition with bank debt, the Company expects to take an extraordinary charge in Fourth Quarter 1999 of approximately $1.8 million after taxes to write down unamortized fees associated with its former bank credit agreement. In addition, the Company expects to record nonrecurring restructuring costs of approximately $4.2 million after taxes in Fourth Quarter 1999 for the completion of a facility consolidation which was already in process at Matthew Clark prior to its merger with the Company.

    Canandaigua Brands, Inc., headquartered in Fairport, New York, is a leading producer and marketer of beverage alcohol brands. As the second largest supplier of wine, the second largest importer of beer and the fourth largest supplier of distilled spirits, Canandaigua Brands is the largest single-source supplier of these products in the United States. The Company is also a leading provider of wine and cider, as well as the premier independent wholesaler of beverage alcohol products, in the United Kingdom.

    The Company's portfolio includes the following key brands:

    Beer: Corona Extra and Corona Light, Modelo Especial, Pacifico, Negra Modelo, St. Pauli Girl, Tsingtao, Peroni, Double Diamond, Tetley's English Ale and Point in the United States

    Wine: Almaden, Inglenook, Richards Wild Irish Rose, Cook's, Arbor Mist, Paul Masson, Taylor, J. Roget, Manischewitz, Marcus James, Estate Cellars, Dunnewood, Vina Santa Carolina and Mystic Cliffs in the United States, and Stowells of Chelsea, QC, Stones and Concord in the United Kingdom

    Distilled Spirits: Barton, Fleischmann's, Paul Masson Grande Amber, Mr. Boston, Montezuma, Canadian LTD, Chi-Chi's, Ten High and Inver House in the United States

    Cider: Blackthorn, Olde English and Diamond White in the United Kingdom