Constellation Reports 22 Percent Increase in Net Income and 15 Percent Increase in Earnings Per Share For The Second Quarter

FAIRPORT, N.Y., Sep 25, 2002 /PRNewswire-FirstCall via COMTEX/ -- Constellation Brands, Inc. (NYSE: STZ and STZ.B) today reported financial results for its second quarter and first six months ended August 31, 2002. Net income increased 22 percent for the second quarter and 27 percent for the first six months. Diluted earnings per share were $0.53 for the second quarter, an increase of 15 percent versus the same period a year ago. Diluted earnings per share increased 18 percent to reach $0.94 for the first six months of fiscal 2003. These results and the results discussed in this press release were calculated on a comparable basis, excluding amortization of goodwill and indefinite lived intangible assets.

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Richard Sands, Constellation Chairman, Chief Executive Officer and President, said, "We are very satisfied with Constellation's second quarter and half-year results. We were able to achieve these results and remain on track to meet our earnings per share target for the full year due to our broad portfolio of leading brands, our unique operating strategy that keeps us in close touch with our markets and an industry that's able to maintain equilibrium despite economic uncertainty."

Consolidated Results

Net sales were $690 million for the three months ended August 31, 2002 ("Second Quarter 2003"), up slightly over the three months ended August 31, 2001 ("Second Quarter 2002"). On a currency-adjusted basis, net sales declined two percent as increased sales in fine wine and U.K. wholesale were more than offset by lower sales in popular and premium wine and U.K. brands. Net sales for the six months ended August 31, 2002 ("Six Months 2003"), increased four percent as compared to the six months ended August 31, 2001 ("Six Months 2002"). Excluding the impact of currency and the four-month benefit from Ravenswood, which was acquired early July 2001, net sales increased two percent for Six Months 2003.

Gross profit for the quarter increased five percent compared to a year ago as gross profit margin improved 140 basis points. The increase in gross profit margin to 28.0 percent resulted primarily from: a favorable mix of sales towards higher margin brands, particularly fine wines and tequila; lower average spirits costs; and higher average imported beer prices partially offset by higher average imported beer costs. For Six Months 2003, gross profit reached $370 million, an increase of nine percent, and gross profit margin improved 130 basis points compared to the prior year period.

Selling, general and administrative expenses were $88 million for Second Quarter 2003, unchanged from the prior year. As a percent of net sales, selling, general and administrative expenses were 12.7 percent, also unchanged from the prior year period. Selling, general and administrative expenses as a percent of net sales for Six Months 2003 were 13.3 percent, an increase of 30 basis points from the prior year.

Operating income increased $10 million for Second Quarter 2003 reaching $106 million, an increase of 11 percent over the prior year period. Operating margins improved 140 basis points over the prior year period. For Six Months 2003, operating income increased 12 percent and operating margin improved 100 basis points.

Equity income from Pacific Wine Partners, an equally owned joint venture with BRL Hardy which commenced operations August 1, 2001, was $3 million for Second Quarter 2003 versus a slight loss for Second Quarter 2002. Shipments of Australian import Banrock Station and Blackstone from California increased 58% and 80%, respectively, for Second Quarter 2003 compared to the three months ended August 31, 2001.

Net interest expense for Second Quarter 2003 declined $2 million to $27 million as a result of lower average borrowing rates and lower average debt levels.

Net income reached $50 million for Second Quarter 2003, a 22 percent increase compared to net income of $41 million for Second Quarter 2002. Diluted earnings per share for Second Quarter 2003 were $0.53, a 15 percent increase over diluted earnings per share of $0.46 for Second Quarter 2002. Net income and diluted earnings per share for Six Months 2003 were $87 million and $0.94, respectively, representing a 27 percent and 18 percent increase versus Six Months 2002.

Imported Beer and Spirits Results

Imported beer and spirits net sales for Second Quarter 2003 were $286 million, down one percent compared to Second Quarter 2002. Imported beer sales were unchanged as price increases on the Mexican beer portfolio implemented in First Quarter 2003 were offset by volume declines. Imported beer shipments declined in the quarter as expected due to inventory adjustments in the distribution channel related to the price increase. Imported beer depletions (sales to retailers) increased five percent for Second Quarter 2003 and consumer takeaway data as measured by AC Nielsen is tracking in the high single digits. Spirits sales declined three percent on lower volume following a five percent gain in First Quarter 2003. For Six Months 2003, spirits sales increased one percent.

Operating income increased 15 percent versus the comparable quarter last year. The growth in operating income was primarily the result of favorable beer pricing, a favorable mix of spirits products and lower average spirits costs partially offset by increased imported beer costs.

For Six Months 2003, imported beer and spirits' net sales and operating income increased five percent and 16 percent, respectively.

Popular and Premium Wine Results

Net sales were $184 million for popular and premium wine for Second Quarter 2003, a decline of $15 million versus Second Quarter 2002. One third of the decline was due to lower non-branded sales, particularly bulk wine sales and concentrate sales. Branded sales declined six percent in the quarter on lower volume. Volumes were impacted primarily by the timing of shipments between quarters and greater competitive price discounts and promotions, which the Company has not participated in heavily. The Company's average price per case is actually higher versus the prior year due to a sales mix to higher priced products, which is reflected in improved margins.

Operating income was flat for Second Quarter 2003 compared to Second Quarter 2002 as a 100 basis point improvement in operating margins offset lower net sales. The margin improvement resulted from higher average selling prices and lower advertising expenses.

Net sales for Six Months 2003 were $348 million compared to $366 million for Six Months 2002. Operating income remained virtually unchanged over the six-month period due to a 50 basis point improvement in operating margin.

U.K. Brands and Wholesale Results

Net sales for Second Quarter 2003 were $190 million versus $179 million reported for the comparable quarter a year ago, an increase of six percent. Excluding the impact of foreign currency, net sales declined one percent. On a currency-adjusted basis, the U.K. wholesale business grew three percent and branded sales declined 10 percent. Growth in the wholesale business was impacted by a 28 percent increase for the same period a year ago and weak summer trading conditions. Declining cider sales continue to impact U.K. branded sales. Excluding cider and the impact of currency, U.K. brands' net sales were down two percent compared to an increase of 28 percent in the prior year period and 13 percent in First Quarter 2003.

Operating income for Second Quarter 2003 was $15 million, unchanged from the prior year.

Excluding the impact of currency, net sales for Six Months 2003 increased 4 percent. Operating income for Six Months 2003 was $25 million, similar to the prior year period.

Fine Wine Results

Fine wine net sales for Second Quarter 2003 were $35 million versus $29 million reported for the comparable quarter last year, an increase of 19 percent. Excluding the one-month benefit from Ravenswood, net sales grew 12 percent for the quarter. Organic growth was driven by volume increases from the Ravenswood, Estancia, Simi and Franciscan brands, partially offset by lower average selling prices. The increase in operating income resulted primarily from increased net sales growth. Net sales and operating income for Six Months 2003 were $70 million and $24 million, respectively; increases of 29 percent and 37 percent compared to Six Months 2002.

Outlook

The following statements are management's current expectations for the Company's three months ending November 30, 2002 ("Third Quarter 2003"), and fiscal year ending February 28, 2003 ("Fiscal 2003"). These statements are made as of the date of this press release and are forward-looking. Actual results may differ materially from these expectations due to a number of risks and uncertainties.

    * Diluted earnings per share for Third Quarter 2003 are expected to be
      within a range of $0.67 to $0.70 versus diluted earnings per share on a
      comparable basis of $0.60 for Third Quarter 2002.

    * Diluted earnings per share for Fiscal 2003 are expected to be within a
      range of $2.00 to $2.04 versus diluted earnings per share before an
      extraordinary item on a comparable basis of $1.79 for Fiscal 2002.
All share and per share amounts in this press release, including within the financial information, reflects the two-for-one stock split of both the Company's Class A and Class B common stock, which was distributed in the form of a stock dividend on May 13, 2002.

Status of Business Outlook

During the quarter, Constellation may reiterate the estimates set forth above under the heading Outlook (collectively, the "Outlook"). Prior to the start of the Quiet Period (described below), the public can continue to rely on the Outlook as still being Constellation's current expectations on the matters covered, unless Constellation publishes a notice stating otherwise.

Beginning November 16, 2002, Constellation will observe a "Quiet Period" during which the Outlook no longer constitutes the Company's current expectations. During the Quiet Period, the Outlook should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the Company. During the Quiet Period, Constellation's representatives will not comment concerning the Outlook or Constellation's financial results or expectations. The Quiet Period will extend until the day when Constellation's next quarterly Earnings Release is published, presently scheduled for Thursday, January 2, 2003.

Adoption of SFAS 142 and EITF No. 01-09

The financial information in this press release reflects the adoption of Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." In order to help investors better evaluate year over year performance, the Company has included financial information on a "comparable" basis, as if the adoption of SFAS 142 had occurred in the prior year. Unless otherwise noted, discussions in this release were prepared on a comparable basis.

Also, beginning March 1, 2002, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of a Vendor's Products." As a result, the Company has reclassified certain promotional expenditures paid to distributors, retailers or consumers as a reduction of revenue and non-cash consideration as an increase to cost of product sold. The Company previously reported these expenses as selling, general and administrative expenses. Prior-period financial information has been reclassified to comply with this guidance. This reclassification does not affect operating income or net income. Additional historical financial information, adjusted to show the effect of EITF 01-09, can be found on the Company's web site: http://www.cbrands.com.

Forward-Looking Statements

The statements made under the heading Outlook, as well as all other statements set forth in this press release which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. The Company's forward-looking statements are based on management's current expectations and unless otherwise noted do not take into account the impact of any future acquisition, merger or any other business combination, divestiture or financing that may be completed after the date of this release. Any projections of future results of operations, and in particular, (i) the Company's estimated diluted earnings per share for Third Quarter 2003, and (ii) the Company's estimated diluted earnings per share for Fiscal 2003, should not be construed in any manner as a guarantee that such results will in fact occur. In addition to the risks and uncertainties of ordinary business operations, the forward-looking statements of the Company contained in this press release are also subject to the following risks and uncertainties: the Company achieving certain sales projections and meeting certain cost targets; wholesalers and retailers may give higher priority to products of our competitors; raw material supply, production or shipment difficulties could adversely affect our ability to supply our customers; increased competitive activities in the form of pricing, advertising and promotions could adversely impact consumer demand for our products and/or result in higher than expected selling, general and administrative expenses; a general decline in alcohol consumption; increases in federal and state excise taxes on beverage alcohol products; changes in foreign exchange rates. For additional information about risks and uncertainties that could adversely affect the Company's forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended February 28, 2002.

About Constellation

Constellation Brands, Inc. is a leading producer and marketer of beverage alcohol brands, with a broad portfolio of wines, spirits and imported beers. The Company is the largest single-source supplier of these products in the United States, and both a major producer and independent drinks wholesaler in the United Kingdom. Well-known brands in Constellation's portfolio include: Corona Extra, Pacifico, Modelo Especial, St. Pauli Girl, Black Velvet, Fleischmann's, Schenley, Ten High, Franciscan Oakville Estate, Simi, Estancia, Ravenswood, Alice White, Talus, Vendange, Almaden, Arbor Mist, Stowells of Chelsea and Blackthorn.

                           CONFERENCE CALL DETAILS
A conference call to discuss the quarterly results will be hosted by Richard Sands, Chairman and CEO, and Tom Summer, Executive Vice President and CFO, on Thursday, September 26, 2002, at 11:00 a.m. (Eastern). The conference call can be accessed by dialing 412-858-4600. A live listen-only web cast of the conference call is available on the Internet at Constellation's web site: http://www.cbrands.com under "Investor Information." If you are unable to participate in the conference call, there will be a replay available on Constellation's web site or by dialing (412) 858-1440 from approximately 1:30 p.m. (Eastern) on Thursday, September 26, 2002, through 12:00 a.m. (Eastern) on Friday, October 4, 2002.

    Digital Playback Instructions - Courtesy of ChorusCall
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       followed by the # sign.
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              CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOLLOW


                   CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                                 August 31,       February 28,
                                                    2002               2002
    ASSETS
    CURRENT ASSETS:
      Cash and cash investments                    $25,015            $8,961
      Accounts receivable, net                     435,550           383,922
      Inventories, net                             768,292           777,586
      Prepaid expenses and other current assets     85,130            60,779
        Total current assets                     1,313,987         1,231,248
    PROPERTY, PLANT AND EQUIPMENT, net             594,331           578,764
    GOODWILL                                       719,826           668,083
    OTHER INTANGIBLE ASSETS, net                   382,957           425,987
    OTHER ASSETS                                   171,591           165,303
       Total assets                             $3,182,692        $3,069,385

    LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES:
      Notes payable                                   $992           $54,775
      Current maturities of long-term debt          80,976            81,609
      Accounts payable                             160,291           153,433
      Accrued excise taxes                          45,627            60,238
      Other accrued expenses and liabilities       317,893           245,155
        Total current liabilities                  605,779           595,210
    LONG-TERM DEBT, less current maturities      1,285,575         1,293,183
    DEFERRED INCOME TAXES                          149,683           163,146
    OTHER LIABILITIES                               63,381            62,110
    STOCKHOLDERS' EQUITY                         1,078,274           955,736
      Total liabilities and stockholders'
       equity                                   $3,182,692        $3,069,385


                   CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (a)
                      (in thousands, except per share data)

                                                           Comparable (b)
                          Three Months  Three Months       Three Months
                               Ended      Ended               Ended
                             August 31, August 31, Percent  August 31, Percent
                               2002        2001      Change    2001     Change

    Gross sales              $898,997    $898,825      0%    $898,825      0%
    Excise taxes             (209,191)   (209,698)     0%    (209,698)     0%
    Net sales                 689,806     689,127      0%     689,127      0%
    Cost of product sold     (496,544)   (505,842)    -2%    (505,842)    -2%
    Gross profit              193,262     183,285      5%     183,285      5%
    Selling, general and
     administrative
     expenses                 (87,616)    (94,284)    -7%      (87,715)    0%
    Operating income          105,646      89,001     19%      95,570     11%
    Equity in earnings of
     joint venture              3,172        (137)    N/A        (137)    N/A
    Interest expense, net     (27,151)    (28,974)    -6%     (28,974)    -6%
    Income before income
     taxes                     81,667      59,890     36%      66,459     23%
    Provision for income
     taxes                    (32,095)    (23,956)    34%     (25,919)    24%
     Net income               $49,572     $35,934     38%     $40,540     22%

    Earnings per common share:
    Basic                       $0.55       $0.42     30%       $0.48     16%
    Diluted                     $0.53       $0.41     30%       $0.46     15%
    Weighted average common
     shares outstanding:
    Basic                      89,691      84,829      6%      84,829      6%
    Diluted                    93,029      87,864      6%      87,864      6%

    Segment Information:
    Net sales:
    Imported Beer and Spirits
    Imported beer            $219,807    $220,225      0%    $220,225      0%
    Spirits                    66,687      68,751     -3%      68,751     -3%
    Net sales                $286,494    $288,976     -1%    $288,976     -1%
    Popular and Premium Wine
    Branded                  $171,203    $181,638     -6%    $181,638     -6%
    Other                      13,277      18,001    -26%      18,001    -26%
    Net sales                $184,480    $199,639     -8%    $199,639     -8%
    U.K. Brands and Wholesale
    Branded                   $58,064     $59,400     -2%     $59,400     -2%
    Wholesale                 132,255     119,467     11%     119,467     11%
    Net sales                $190,319    $178,867      6%    $178,867      6%
    Fine Wine                 $34,880     $29,242     19%     $29,242     19%
    Intersegment
     eliminations             $(6,367)    $(7,597)   -16%     $(7,597)   -16%
    Consolidated net sales   $689,806    $689,127      0%    $689,127      0%

    Operating income:
    Imported Beer and
     Spirits                  $61,555     $51,361     20%     $53,494     15%
    Popular and Premium
     Wine                      25,699      23,934      7%      25,744      0%
    U.K. Brands and
     Wholesale                 14,512      13,432      8%      14,989     -3%
    Fine Wine                  12,030       8,098     49%       9,167     31%
    Corporate Operations       (8,150)     (7,824)     4%      (7,824)     4%
    Consolidated operating
     income                  $105,646     $89,001     19%     $95,570     11%

    (a)  Reflects the adoption of EITF Issue No. 01-09.  Prior-period has
         been reclassified to comply with this guidance.

    (b)  Adjusted to exclude amortization of goodwill and
         indefinite lived intangible assets under SFAS No. 142.


                   CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (a)
                      (in thousands, except per share data)

                                                         Comparable (b)
                          Six Months  Six Months          Six Months
                             Ended       Ended               Ended
                          August 31,  August 31,  Percent  August 31,  Percent
                              2002        2001     Change     2001     Change

    Gross sales            $1,759,460  $1,690,921      4%  $1,690,921      4%
    Excise taxes             (419,261)   (403,362)     4%    (403,362)     4%
    Net sales               1,340,199   1,287,559      4%   1,287,559      4%
    Cost of product sold     (970,211)   (948,384)     2%    (948,384)     2%
    Gross profit              369,988     339,175      9%     339,175      9%
    Selling, general and
     administrative
     expenses                (178,377)   (180,251)    -1%    (167,328)     7%
    Operating income          191,611     158,924     21%     171,847     12%
    Equity in earnings of
     joint venture              5,911        (137)    N/A        (137)    N/A
    Interest expense, net     (54,292)    (59,159)    -8%     (59,159)    -8%
    Income before income
     taxes                    143,230      99,628     44%     112,551     27%
    Provision for income
     taxes                    (56,289)    (39,851)    41%     (43,895)    28%
     Net income               $86,941     $59,777     45%     $68,656     27%

    Earnings per common share:
    Basic                       $0.97       $0.71     36%       $0.82     19%
    Diluted                     $0.94       $0.69     36%       $0.80     18%
    Weighted average common
     shares outstanding:
    Basic                      89,268      83,668      7%      83,668      7%
    Diluted                    92,562      86,252      7%      86,252      7%

    Segment Information:
    Net sales:
    Imported Beer and Spirits
    Imported beer            $419,513    $396,133      6%    $396,133      6%
    Spirits                   138,886     137,792      1%     137,792      1%
    Net sales                $558,399    $533,925      5%    $533,925      5%
    Popular and Premium Wine
    Branded                  $320,805    $330,457     -3%    $330,457     -3%
    Other                      27,150      35,239    -23%      35,239    -23%
    Net sales                $347,955    $365,696     -5%    $365,696     -5%
    U.K. Brands and Wholesale
    Branded                  $112,726    $112,606      0%    $112,606      0%
    Wholesale                 264,389     234,473     13%     234,473     13%
    Net sales                $377,115    $347,079      9%    $347,079      9%
    Fine Wine                 $69,636     $54,094     29%     $54,094     29%
    Intersegment
     eliminations            $(12,906)   $(13,235)    -2%    $(13,235)    -2%
    Consolidated net sales $1,340,199  $1,287,559      4%  $1,287,559      4%

    Operating income:
    Imported Beer and
     Spirits                 $115,976     $95,412     22%     $99,562     16%
    Popular and Premium
     Wine                      42,568      39,329      8%      42,922     -1%
    U.K. Brands and
     Wholesale                 24,775      22,285     11%      25,327     -2%
    Fine Wine                  23,736      15,146     57%      17,284     37%
    Corporate Operations      (15,444)    (13,248)    17%     (13,248)    17%
    Consolidated operating
     income                  $191,611    $158,924     21%    $171,847     12%

    (a)  Reflects the adoption of EITF Issue No. 01-09.  Prior-period has been
         reclassified to comply with this guidance.

    (b)  Adjusted to exclude amortization of goodwill and indefinite lived
         intangible assets under SFAS No. 142.


SOURCE Constellation Brands, Inc.

CONTACT:
Emilio Ruocco, +1-585-218-3667, or Mark Maring,
+1-585-218-3668, both of Constellation Brands, Inc.
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URL: http://www.cbrands.com
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