Constellation's Earnings Up 17 Percent in Third Quarter Beer Sales and Margin Improvements Fuel Growth

FAIRPORT, N.Y., Jan. 4 /PRNewswire/ -- Constellation Brands, Inc. (NYSE: STZ; STZ.B) today reported earnings per share on a fully diluted basis of $1.87 for the three months ended November 30, 2000 ("Third Quarter 2001"), an increase of 17 percent over earnings per share of $1.60 for the three months ended November 30, 1999 ("Third Quarter 2000"). Net income also increased 17 percent to reach $35 million versus net income of $30 million for the same period a year ago.

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Richard Sands, Chairman, Chief Executive Officer and President of Constellation said, "I am very pleased to report the best quarter in the Company's history. We had both record earnings and record sales of our branded and wholesale products, on a currency adjusted basis. Our strategy of meeting today's consumers' diverse needs with the broadest brand portfolio in the industry, while focusing on the distribution channels for each category necessary to reach the consumer, continues to drive demand for our products. Growth in our branded business was driven by imported beer sales, led by Corona, which increased over 20%, UK table wines, led by Stowells of Chelsea, which increased 24%, and spirits, led by vodka, tequila and prepared cocktails, which was up 6%." Sands further stated that, "We expect our favorable earnings results to continue through the fiscal year."

Consolidated Results

Net sales reported for Third Quarter 2001 of $630 million represents a four percent decrease from net sales reported for the comparable period a year ago. After adjusting for an adverse foreign currency impact, net sales would have been $654 million versus $653 million reported for Third Quarter 2000. Sales for our branded and wholesale products increased 2%, offset by significant declines in non-branded businesses. Sales growth was impacted by difficult comparisons against the prior period due to Millennium activities, particularly special occasion items like fine wines and champagnes. Net sales for the nine months ended November 30, 2000 ("Nine Months 2001") reached $1.85 billion, an increase of three percent versus net sales of $1.80 billion reported for the nine months ended November 30, 1999 ("Nine Months 2000"). After adjusting for an unfavorable foreign currency impact, net sales would have been $1.89 billion, an increase of five percent versus a year ago.

As a percent of net sales, gross margin for Third Quarter 2001 improved 93 basis points to 33.0 percent versus the same quarter a year ago. The margin improvements were driven primarily by price increases taken in the Company's fine wine business as well as cost improvements in the Company's United Kingdom division, Matthew Clark. With the gross margin improvement, gross profit remained essentially unchanged at $208 million, compared to gross profit for Third Quarter 2000. Gross profit and gross margin for Nine Months 2001 were $593 million and 32.0 percent, respectively, compared to $555 million and 30.7 percent for Nine Months 2000.

Selling, general and administrative expenses, as a percent of net sales were favorable by 76 basis points compared to the prior period, declining from 20.3% to 19.5%. Selling, general and administrative expenses were $123 million for Third Quarter 2001 compared to $132 million reported for the same period last year. The decrease is primarily attributed to reduced marketing costs associated with Millennium promotions a year ago. For Nine Months 2001, selling, general and administrative expenses, as a percent of net sales, were virtually unchanged. Selling, general and administrative expenses reached $379 million for Nine Months 2001 compared to $368 million reported for the same period a year ago.

Operating income in Third Quarter 2001 reached $85 million versus $77 million for the same period last year, an increase of ten percent. For Nine Months 2001, operating income increased by 14 percent to reach $213 million compared to $187 million reported for the comparable period last year, excluding the pretax impact of nonrecurring charges reported for Nine Months 2000.

Net interest expense for Third Quarter 2001 decreased two percent to $27 million from $28 million reported for same period a year ago, despite higher average borrowing costs. The decline in net interest expense for the quarter is primarily attributed to lower average borrowings when compared to Third Quarter 2000 as the Company continues to use free cash flow to pay down debt. For Nine Months 2001, net interest expense increased five percent to reach $82 million versus $78 million for the same period a year ago. The increase in net interest expense can be primarily attributed to higher debt levels for the full period related to financing the Franciscan and Simi acquisitions.

Net income for Third Quarter 2001 grew 17 percent to reach $35 million versus $30 million reported for the comparable quarter a year ago. Earnings per share on a fully diluted basis were $1.87 versus $1.60, an increase of 17 percent when compared to the comparable period last year. For Nine Months 2001, net income increased 21 percent to reach $79 million versus $65 million for the comparable period a year ago, excluding the after-tax impact of nonrecurring charges reported for Nine Months 2000. Earnings per share on a fully diluted basis were $4.24 for Nine Months 2001, representing an increase of 20 percent when compared to fully diluted earnings per share of $3.52 for the same period last year, excluding the after-tax impact of nonrecurring charges reported for Nine Months 2000.

Barton

Barton's net sales for Third Quarter 2001 grew 13 percent to reach $242 million. Beer sales increased 22 percent for the quarter, primarily driven by volume increases. Increases in branded spirits sales of 6% were offset by lower contract manufacturing sales. Operating income grew 12 percent to reach $46 million versus $41 million reported for the comparable period last year, led by increases in the imported beer portfolio.

Compared to the prior period, net sales and operating income for Nine Months 2001 increased to $763 million and $136 million, respectively, or 15 percent and 18 percent, respectively. On a pro forma basis, net sales and operating income grew 13 percent and 15 percent, respectively.

Canandaigua Wine

Canandaigua Wine's net sales for Third Quarter 2001 decreased to $184 million compared to $207 million reported for the comparable quarter last year. Increases in Arbor Mist and Paul Masson Grande Amber sales were offset by lower champagne sales during Third Quarter 2001 compared to the prior year, which included the impact associated with the Millennium, lower table wine sales and lower bulk wine and grape juice concentrate sales.

Operating income for Third Quarter 2001 was $16 million versus $19 million reported for the same period a year ago due to lower sales. Net sales and operating income for Nine Months 2001 were $514 million and $35 million, respectively. For the comparable period a year ago, net sales and operating income were $541 million and $37 million, respectively, excluding the pretax impact of nonrecurring charges reported for Nine Months 2000.

Matthew Clark

Matthew Clark's net sales for Third Quarter 2001 were $180 million versus $205 million reported for the comparable quarter a year ago, a decrease of 12 percent, due to an adverse foreign currency impact amounting to $25 million. On a currency-adjusted basis, sales increases in branded table wine, packaged cider and sales from Forth Wines, which was acquired on October 27, 2000, were offset by declines in draft cider and private label. Operating income for Third Quarter 2001 reached $18 million, an increase of 21 percent when compared with $15 million reported for the comparable period last year. The growth in operating income is primarily related to the following areas: continued benefits received from depot rationalization and a focus on customer profitability in the wholesale business; realization of the full benefit of the cider mill consolidation which was completed in the spring of 1999; and the shift from private label business to focus on higher margin branded business.

Net sales for Nine Months 2001 were $519 million versus $555 million reported for the same period last year. Net sales were up approximately one percent adjusting for the adverse impact of foreign currency fluctuations, amounting to $42 million. Excluding the pretax nonrecurring charges reported for Nine Months 2000, operating income increased ten percent to reach $41 million versus $37 million reported for the same period last year. Adjusting for foreign currency fluctuations, operating income would have increased 19%.

Franciscan

Franciscan's net sales for Third Quarter 2001 were $28 million versus $27 million reported for the comparable quarter last year. Sales growth this quarter was favorable in view of the prior year's third quarter, which was a particularly strong quarter with sales up 37%.

Driven by increases in pricing, operating income grew to $9 million compared to $6 million reported for the comparable quarter a year ago, an increase of 50 percent.

Net sales and operating income for Nine Months 2001 were $71 million and $19 million, respectively. On a pro forma basis, net sales for Nine Months 2001 increased 12 percent.

Outlook

The following statements are management's current expectations for the Company's three months ending February 28, 2001 ("Fourth Quarter 2001"). 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.

Fully diluted earnings per share for Fourth Quarter 2001 are expected to be within a range of $0.95 to $0.98.

The Company anticipates holding its fourth quarter conference call to discuss its financial results and Fiscal 2002 expectations on April 12, 2001.

Status of Business Outlook and Related Risk Factors Statements

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 February 15, 2001, 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 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 April 12, 2001.

The statements made under the heading Outlook are forward-looking statements. These forward-looking statements 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. Further, these statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. For a detailed list of the risk factors that may adversely impact these forward-looking statements, please refer to Attachment A set forth below in this press release; please also refer to our Company's Securities and Exchange Commission filings.

About Constellation

Constellation Brands, Inc., headquartered in Fairport, New York, is a leader in the production, marketing and distribution of beverage alcohol products in North America and the United Kingdom. The Company markets leading brands, including imported beers, wines, spirits, cider and bottled water, and is a leading drinks wholesaler in the United Kingdom. Constellation can be found on the Internet at http://www.cbrands.com.

CONFERENCE CALL DETAILS

A conference call to discuss the quarterly results will be hosted by Richard Sands, CEO, and Tom Summer, CFO, on Thursday, January 4, 2001, at 10:00 a.m. EST. The conference call can be accessed by dialing 800-860-2442. 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 Info.

If you are unable to participate in the conference call, there will be a replay available on Constellation's web site.


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

                                                November 30,    February 29,
                                                   2000             2000
                                                 (unaudited)      (audited)
    ASSETS

    CURRENT ASSETS:
      Cash and cash investments                       $1,871        $34,308
      Accounts receivable, net                       386,908        291,108
      Inventories, net                               699,885        615,700
      Prepaid expenses and other current assets       70,140         54,881
         Total current assets                      1,158,804        995,997
    PROPERTY, PLANT AND EQUIPMENT, net               536,300        542,971
    OTHER ASSETS                                     770,686        809,823
      Total assets                                $2,465,790     $2,348,791

    LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES:
      Notes payable                                 $121,000        $26,800
      Current maturities of long-term debt            37,544         53,987
      Accounts payable                               163,195        122,213
      Accrued excise taxes                            44,853         30,446
      Other accrued expenses and liabilities         245,538        204,771
         Total current liabilities                   612,130        438,217
    LONG-TERM DEBT, less current maturities        1,123,929      1,237,135
    DEFERRED INCOME TAXES                            116,523        116,447
    OTHER LIABILITIES                                 30,337         36,152
    STOCKHOLDERS' EQUITY                             582,871        520,840
      Total liabilities and stockholders' equity  $2,465,790     $2,348,791

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

                                Three Months    Three Months
                                    Ended            Ended
                                November 30,     November 30,
                                    2000            1999          Percent
                                (unaudited)     (unaudited)        Change

    Gross sales                 $833,447           $864,075           -4%
    Net sales                   $629,577           $652,969           -4%
    Cost of product sold        (421,524)          (443,282)          -5%
    Gross profit                 208,053            209,687           -1%
    Selling, general and
     administrative expenses    (122,815)          (132,309)          -7%
    Operating income              85,238             77,378           10%
    Interest expense, net        (26,983)           (27,544)          -2%
    Income before income taxes    58,255             49,834           17%
    Provision for income taxes   (23,302)           (19,934)          17%
    Net income                   $34,953            $29,900           17%

    Earnings per common share:
      Basic                        $1.90              $1.65           15%
      Diluted                      $1.87              $1.60           17%
    Weighted average common
     shares outstanding:
    Basic                         18,394             18,083            2%
    Diluted                       18,734             18,651            0%

    Segment Information:
    Net sales:
    Barton
    Beer                        $163,292           $134,155           22%
    Spirits                       79,096             80,548           -2%
    Net sales                   $242,388           $214,703           13%
    Canandaigua Wine
    Branded                     $162,112           $182,190          -11%
    Other                         21,484             24,925          -14%
    Net sales                   $183,596           $207,115          -11%
    Matthew Clark
    Branded                      $79,355            $93,157          -15%
    Wholesale                    100,725            112,049          -10%
    Net sales                   $180,080           $205,206          -12%
    Franciscan                   $27,818            $27,473            1%
    Corporate Operations
    and Other                       $826             $1,233          -33%
    Intersegment eliminations    $(5,131)           $(2,761)          86%
    Consolidated net sales      $629,577           $652,969           -4%

    Operating income:
    Barton                       $46,370            $41,380           12%
    Canandaigua Wine              16,453             18,850          -13%
    Matthew Clark                 18,431             15,193           21%
    Franciscan                     9,001              5,991           50%
    Corporate Operations
     and Other                    (5,017)            (4,036)          24%
    Consolidated operating
     income                      $85,238            $77,378           10%

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

                                Nine Months     Nine Months
                                   Ended           Ended
                               November 30,    November 30,
                                    2000           1999           Percent
                                (unaudited)     (unaudited)        Change

    Gross sales                 $2,436,637       $2,383,909            2%
    Net sales                   $1,852,647       $1,804,718            3%
    Cost of product sold        (1,260,082)      (1,249,781)           1%
    Gross profit                   592,565          554,937            7%
    Selling, general and
     administrative expenses      (379,159)        (368,130)           3%
    Nonrecurring charges                --           (5,510)          N/A
    Operating income               213,406          181,297           18%
    Interest expense, net          (81,797)         (78,219)           5%
    Income before income taxes     131,609          103,078           28%
    Provision for income taxes     (52,644)         (41,231)          28%
    Net income                     $78,965          $61,847           28%

    Earnings per common share:
      Basic                           $4.31           $3.43           26%
      Diluted                         $4.24           $3.34           27%
    Weighted average common
     shares outstanding:
      Basic                          18,308          18,023            2%
      Diluted                        18,642          18,502            1%

    Segment Information:
    Net sales:
    Barton
    Beer                           $538,585        $457,961           18%
    Spirits                         224,203         207,697            8%
    Net sales                      $762,788        $665,658           15%
    Canandaigua Wine
    Branded                        $455,950        $477,361           -4%
    Other                            58,082          63,541           -9%
    Net sales                      $514,032        $540,902           -5%
    Matthew Clark
    Branded                        $225,338        $248,411           -9%
    Wholesale                       293,958         306,802           -4%
    Net sales                      $519,296        $555,213           -6%
    Franciscan                      $71,100         $44,610           59%
    Corporate Operations and Other   $2,685          $4,122          -35%
    Intersegment eliminations      $(17,254)        $(5,787)         198%
    Consolidated net sales       $1,852,647      $1,804,718            3%

    Operating income:
    Barton                         $135,818        $114,839           18%
    Canandaigua Wine                 34,849          34,869            0%
    Matthew Clark                    41,027          34,503           19%
    Franciscan                       18,659           7,562          147%
    Corporate Operations
     and Other                      (16,947)        (10,476)          62%
    Consolidated operating
     income                        $213,406        $181,297           18%

                                 Attachment A
        SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
                              REFORM ACT OF 1995

The Company makes forward-looking statements from time to time and desires to take advantage of the "safe harbor" which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements.

The 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 the forward-looking statements. Any projections of future results of operations, and in particular, (i) the Company's estimated net sales growth for the quarter ending February 28, 2001, and (ii) the Company's estimated fully diluted earnings per share for the quarter ending February 28, 2001, (which estimates are set forth above under the heading "Outlook"), should not be construed in any manner as a guarantee that such results will in fact occur. There can be no assurance that any forward-looking statement in this press release will be realized or that actual results will not be significantly higher or lower than set forth in such forward-looking statement. 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:

Performance of Wholesale Distributors

  • In the United States, we sell our products principally to wholesalers

for resale to retail outlets, including grocery stores, package liquor

stores, club and discount stores and restaurants. The replacement or poor

performance of our major wholesalers or our inability to collect accounts

receivable from our major wholesalers could materially and adversely

affect our results of operations and financial condition. Distribution

channels for beverage alcohol products have been characterized in recent

years by rapid change, including consolidations of certain wholesalers.

In addition, wholesalers and retailers of our products offer products,

which compete directly with our products for retail shelf space and

consumer purchases. Accordingly, there is a risk that these wholesalers

or retailers may give higher priority to products of our competitors. In

the future, our wholesalers and retailers may not continue to purchase our

products or provide our products with adequate levels of promotional

support.

Suppliers, Raw Materials and Price Fluctuations

  • Our business is heavily dependent upon raw materials, such as grapes,

grape juice concentrate, grains, and alcohol from third-party suppliers

and packaging materials. We could experience raw material supply,

production or shipment difficulties, which could adversely affect our

ability to supply goods to our customers. We are also directly affected

by increases in the costs of such raw materials. Although we believe we

have adequate sources of grape supplies, in the event demand for certain

wine products exceeds expectations, we could experience shortages. In

addition, one or our largest components of cost of goods sold is that of

glass bottles, which have only a small number of producers. The inability

of any of our glass bottle suppliers to satisfy our requirements could

adversely affect our business.

Competition

  • We are in a highly competitive industry and the dollar amount, and unit

volume, of our sales could be negatively affected by our inability to

maintain or increase prices, changes in geographic or product mix, a

general decline in beverage alcohol consumption or the decision of our

wholesale customers, retailers or consumers to purchase competitive

products instead of our products. Wholesaler, retailer and consumer

purchasing decisions are influenced by, among other things, the perceived

absolute or relative overall value of our products, including their

quality or pricing, compared to competitive products. Unit volume and

dollar sales could also be affected by pricing, purchasing, financing,

operational, advertising or promotional decisions made by wholesalers and

retailers which could affect their supply of, or consumer demand for, our

products. We could also experience higher than expected selling, general

and administrative expenses if we find it necessary to increase the number

of our personnel or our advertising or promotional expenditures to

maintain our competitive position or for other reasons.

Consumption of Products We Sell

Consumer purchasing patterns and preferences may impact the consumption of the products we sell. There are a variety of factors that may cause consumers to decrease the amount and type of alcohol products purchased, including but not limited to the following:

  • concerns about the health consequences of consuming beverage alcohol products and about drinking and driving;

  • a trend toward a healthier diet including lighter, lower calorie beverages such as diet soft drinks, juices and sparkling water products; and activities of anti-alcohol consumer groups.

Excise Taxes and Government Restrictions

  • In the United States, the federal government and individual states

impose excise taxes on beverage alcohol products in varying amounts, which

have been subject to change. Increases in excise taxes on beverage

alcohol products, if enacted, could materially and adversely affect our

financial condition or results of operations. In addition, the beverage

alcohol products industry is subject to extensive regulation by state and

federal agencies. The federal Bureau of Alcohol, Tobacco and Firearms and

various state liquor authorities regulate such matters as licensing

requirements, trade and pricing practices, permitted and required

labeling, advertising and relations with wholesalers and retailers. In

recent years, federal and state regulators have required warning labels

and signage. In the United Kingdom, Matthew Clark carries on its excise

trade under a Customs and Excise License. Licenses are required for all

premises where wine is produced. Matthew Clark holds a license to act as

an excise warehouse operator and registrations have been secured for the

production of cider and bottled water. New or revised regulations or

increased licensing fees and requirements could have a material adverse

effect on our financial condition or results of operations.

Currency Rate Fluctuations/Foreign Operations

The Company has operations in different countries and, therefore, is subject to the risks associated with currency fluctuations. The Company could experience changes in its ability to obtain or hedge against foreign currency, foreign exchange rates and fluctuations in those rates. The Company could also be affected by nationalizations or unstable governments or legal systems or intergovernmental disputes. These currency, economic and political uncertainties may affect the Company's results, especially to the extent these matters, or the decisions, policies or economic strength of the Company's suppliers, affect the Company's foreign operations or imported beer products. SOURCE Constellation Brands, Inc.

CONTACT: Mark Maring, V.P., Investor Relations of Constellation Brands, Inc., 716-218-2169/