· Achieves comparable basis diluted EPS of $0.66 and reported basis diluted EPS of $0.65; results reflect favorable tax rate

· Increases full year diluted EPS guidance to reflect expected tax rate benefits

· Strong free cash flow results drive $100 million increase to annual guidance; new target range set at record $475-$525 million

· Decreases debt by more than $100 million

· Recently announces agreement to sell Australian and U.K. business

Third Quarter 2011 Financial Highlights*

(in millions, except per share data)
Comparable % Change Reported % Change
Consolidated net sales $966 -2% $966 -2%
Operating income $176 -8% $170 25%
Operating margin 18.2% -120 bps 17.6% 380bps
Equity in earnings of equity method investees** $71 19% $71 NM
Earnings before interest and taxes (EBIT) $248 -2% NA NA
Net income $142 18% $139 NM
Diluted earnings per share $0.66 22% $0.65 NM

VICTOR, N.Y., Jan. 6, 2011 - Constellation Brands, Inc. (NYSE: STZ), the world's leading premium wine company, reported today its third quarter fiscal 2011 results.

"We've accomplished a great deal this year including the recently announced sale of our Australian and U.K. business. This is the right move for the company and positions us to better achieve the goals associated with our profitable organic growth strategy," said Rob Sands, president and chief executive officer. "Our third quarter results demonstrate that our strategy is working. We are experiencing continued momentum from our U.S. distributor transition with positive depletion trends recorded during the quarter and we continue to reap the benefits from our diligent focus on free cash flow."

Third Quarter 2011 Net Sales Highlights*

(in millions)
Reported Organic



% Change





% Change
Constant Currency

Consolidated $966 -2% -3% $966 1% --
Wine $911 -3% -3% $911 1% --
North America Wine $676 1% -- $676 1% --
Australia and Europe Wine $235 -12% -12% $235 -- -1%
Spirits $55 8% 8% $55 8% 8%

*Definitions of reported, comparable, organic and constant currency, as well as reconciliations of non-GAAP financial measures, are contained elsewhere in this news release.

** Hereafter referred to as "equity earnings."

NA=Not applicable

NM=Not meaningful

Net Sales Commentary

Reported consolidated net sales decreased two percent due primarily to the divestiture of the U.K. cider business. Organic net sales on a constant currency basis were level with the prior year third quarter.

North America wine net sales on a constant currency basis were even with the prior year quarter and reflected favorable product mix offset by a decrease in U.S. volume. "Total depletions for our U.S. wine business increased two percent while depletions for our focus brands, which represent the majority of our U.S. wine profitability, increased high single digits and include some of our well-known products such as Robert Mondavi, Blackstone, Estancia, Kim Crawford, Simi and Wild Horse," said Sands.

Australia and Europe wine net sales on an organic constant currency basis decreased one percent versus the prior year third quarter.

Total spirits organic net sales increased eight percent for the quarter, led by a 34 percent gain for SVEDKA Vodka. "Continued investment in television advertising and events like the New York City Fashion Week have contributed to strong performance for SVEDKA with sales and depletions growing double digits on a fiscal year-to-date basis," said Sands.

Operating Income and Net Income Commentary

The consolidated comparable basis operating income decline was primarily driven by a decrease in the North America wine segment which reflected investments in selling, general and administrative expense.

Constellation's equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $58 million, an increase of 27 percent from the prior year third quarter. For third quarter 2011, Crown generated net sales of $612 million, an increase of 22 percent, and operating income of $116 million, an increase of 27 percent. Net sales and operating income benefited primarily from volume growth.

"During the third quarter, Crown was able to work with wholesalers to optimize inventory levels after experiencing supply chain challenges during the summer," said Sands. "New advertising programs for Corona Extra and Corona Light during the fall sports season have continued to drive solid consumer engagement for these brands. In addition, Modelo Especial, one of the fastest growing beer brands, achieved another milestone by surpassing the 30 million case sales level on an annual basis. We believe these and other initiatives coupled with strong marketplace execution drove mid-single-digit depletion growth during the quarter."

For third quarter 2011, pre-tax restructuring charges and unusual items totaled $6 million compared to $81 million for the prior year third quarter.

Interest expense totaled $49 million, a decrease of 25 percent. The decrease was primarily due to lower average interest rates and borrowings during the quarter.

The comparable basis effective tax rate for the quarter was 29 percent compared to 35 percent for the prior year third quarter. The company now anticipates a full year comparable basis effective tax rate of 31 percent, which reflects the favorable outcome of various tax items.

Common Stock Repurchase

During the quarter, the company received the final installment of shares under its accelerated stock buyback (ASB) transaction of which it paid $300 million in April 2010 and received 17.2 million shares. Of these shares, 13.8 million were received in the company's first quarter of fiscal 2011 and 3.4 million were received Nov. 30, 2010.

The company increased its fiscal 2011 free cash flow target to a record level in the range of $475-$525 million. "We continue to make progress in reducing our net working capital investment and we believe this year's free cash flow generation is sustainable longer term," said Bob Ryder, chief financial officer, Constellation Brands. "Our strong free cash flow generation has enabled the company to fund the stock buyback transaction and to repay debt. Additionally, the combination of strong free cash flow and expected proceeds from the sale of the Australian and U.K. business targets us to reduce our debt to comparable basis EBITDA ratio to the high three times range by the end of the fiscal year."

Sale of Australian and U.K. Business

Constellation recently announced that it signed an agreement to sell its Australian and U.K. business to CHAMP Private Equity. The transaction is valued at approximately A$290 million. The company will retain an approximate 20 percent interest in the business and receive cash proceeds of about $230 million, subject to closing adjustments. The transaction, which is expected to close by the end of January 2011, is subject to customary and routine closing conditions. Constellation expects the net proceeds will be used to reduce borrowings.


"I am pleased with our strong marketplace execution this year, particularly for our U.S. wine and beer businesses. We are delivering on our strategic and financial plan and I am confident in our outlook for the remainder of the year," said Sands.


The table below sets forth management's current diluted EPS expectations for fiscal year 2011 compared to fiscal year 2010 actual results, both on a reported basis and a comparable basis.

Constellation Brands Fiscal Year 2011

Diluted Earnings Per Share Outlook

Reported Basis Comparable Basis




Fiscal Year Ending Feb. 28



$1.80 - $1.85


Full-year fiscal 2011 guidance, excluding the impact of the divestiture of the company's Australian and U.K. business discussed above includes the following current assumptions:

  • Interest expense: approximately $195-$200 million
  • Tax rate: approximately 36 percent on a reported basis, as compared to 31 percent on a comparable basis, primarily due to a provision of five percentage points associated with the recognition in first quarter 2011 of a valuation allowance against deferred tax assets in the U.K.
  • Weighted average diluted shares outstanding: approximately 214 million
  • Free cash flow: $475-$525 million

Conference Call

A conference call to discuss third quarter fiscal 2011 results and outlook will be hosted by President and Chief Executive Officer Rob Sands and Executive Vice President and Chief Financial Officer Bob Ryder on Thurs., Jan. 6, 2011 at 10:30 a.m. (eastern). The conference call can be accessed by dialing +973-935-8505 beginning 10 minutes prior to the start of the call. A live listen-only webcast of the conference call, together with a copy of this news release (including the attachments) and other financial information that may be discussed in the call will be available on the Internet at Constellation's Web site: www.cbrands.com under "Investors," prior to the call.


Reported basis ("reported") operating income, net income and diluted EPS are as reported under generally accepted accounting principles. Operating income, net income and diluted EPS on a comparable basis ("comparable"), exclude restructuring charges and unusual items. The company's measure of segment profitability excludes restructuring charges and unusual items, which is consistent with the measure used by management to evaluate results.

The company discusses additional non-GAAP measures in this news release, including constant currency net sales, organic net sales, comparable basis EBIT and free cash flow.

Supplemental Financial Information

Tables reconciling non-GAAP measures, together with definitions of these measures and the reasons management uses these measures, are attached to and are part of this news release.

About Constellation Brands

Constellation Brands is the world's leading premium wine company that achieves success through an unmatched knowledge of wine consumers, storied brands that suit varied lives and tastes, and talented employees worldwide. With a broad portfolio of widely admired premium products across the wine, beer and spirits categories, Constellation's brand portfolio includes Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Estancia, Ravenswood, Hardy's, Jackson Triggs, Kim Crawford, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka.

Constellation Brands (NYSE: STZ and STZ.B) is an S&P 500 Index and Fortune 1000® company with more than 100 brands in our portfolio, sales in about 150 countries and operations at more than 40 facilities. The company believes that industry leadership involves a commitment to our brands, to the trade, to the land, to investors and to different people around the world who turn to our products when celebrating big moments or enjoying quiet ones. We express this commitment through our vision: to elevate life with every glass raised. To learn more about Constellation, visit the company's web site at www.cbrands.com.

Forward-Looking Statements

The statements made under the heading Outlook, and all statements other than statements of historical facts set forth in this news release regarding Constellation's business strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management, as well as information concerning expected actions of third parties, are forward-looking statements (collectively, the "Projections") that involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the Projections.

During the current quarter, Constellation may reiterate the Projections. Prior to the start of the company's quiet period, which will begin at the close of business on Feb. 28, 2011, the public can continue to rely on the Projections as still being Constellation's current expectations on the matters covered, unless Constellation publishes a notice stating otherwise. During Constellation's "quiet period," the Projections should not be considered to constitute the company's expectations and should be considered historical, speaking as of prior to the quiet period only and not subject to update by the company.

The Projections 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, restructuring or other strategic business realignments, financing that may be completed after the date of this release. There can be no assurance that any transaction between Constellation and CHAMP Private Equity will occur or will occur on the timetable contemplated hereby. The Projections 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 Projections of the company contained in this news release are subject to a number of risks and uncertainties, including:

  • completion of various portfolio actions; implementation of consolidation activities and actual U.S. distributor transition experience;
  • factors related to the company's ability to consummate the transaction with CHAMP Private Equity;
  • achievement of all expected cost savings from the company's various restructuring plans and realization of expected asset sale proceeds from the sale of inventory and other assets, including the sale of the company's Australian and U.K. business;
  • accuracy of the bases for forecasts relating to joint ventures and associated costs, losses and capital investment requirements;
  • restructuring charges, acquisition-related integration costs and other one-time costs associated with integration and restructuring plans may vary materially from management's current estimates due to variations in one or more of anticipated headcount reductions, contract terminations, costs or timing of plan implementation;
  • raw material supply, production or shipment difficulties could adversely affect the company's ability to supply its customers;
  • increased competitive activities in the form of pricing, advertising and promotions could adversely impact consumer demand for the company's products and/or result in lower than expected sales or higher than expected expenses;
  • general economic, geo-political and regulatory conditions, prolonged downturn in the economic markets in the U.S. and in the company's major markets outside of the U.S., continuing instability in world financial markets, or unanticipated environmental liabilities and costs;
  • changes to accounting rules and tax laws, and other factors which could impact the company's reported financial position, results of operations or effective tax rate;
  • changes in interest rates and the inherent unpredictability of currency fluctuations, commodity prices and raw material costs; and
  • other factors and uncertainties disclosed in the company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended Feb. 28, 2010, which could cause actual future performance to differ from current expectations.

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