Constellation Brands 1Q profit drops 85 percent

NEW YORK — Wine and spirits maker Constellation Brands Inc. said it is benefiting from consumers switching from higher-priced beverages to those that offer more buzz for the buck.

The company, which released first-quarter profit and sales figures Wednesday that beat Wall Street analysts’ expectations, said on a conference call with investors that it is also seeing some sales lift as consumers look for cheaper alternatives to save cash.

“We do see a trend towards what we would describe as better-known and trusted brands that represent good value for the money,” Rob Sands, the company’s president and CEO, said during the call.

That trend is helping the world’s biggest wine company by volume, which sells a number of “mid-tier” brands, priced above $5, such as Woodbridge by Robert Mondavi and Clos du Bois.

Sands said consumers are looking for bargains within every price category — even the mid-tier range.

He added that higher-priced brands that sell for more than $15, though, have been hurt as more consumers forgo ordering a bottle at a restaurant to save cash.

Although the company is feeling some effects of the downturn, its results for the fiscal first quarter still pleased investors.

Shares jumped 93 cents, or 7.3 percent, to close at $13.61.

The company’s net income slid 85 percent due to restructuring charges and other one-time items. It earned $6.5 million, or 3 cents per share, down from $44.6 million, or 20 cents per share, a year earlier.

Excluding the charges, it earned 33 cents per share for the quarter that ended May 31, narrowly topping the 32-cent estimate of analysts polled by Thomson Reuters. Analysts’ estimates normally exclude one-time items.

Sales for the Victor, N.Y.-based company dropped 15 percent to $791.6 million partly due to the stronger dollar. Most U.S. companies that sell goods internationally convert those sales from foreign currencies into dollars when they report their financial results. If the dollar is stronger than those currencies, the translation results in fewer dollars in revenue.

Analysts predicted sales of $780.9 million. Excluding the effect of the dollar, spirits sales jumped 13 percent, mainly due to strong sales of Svedka vodka, which costs about $10 for a 750 milliliter bottle.

The divestiture of the value spirits business, spirits contract production services and some Pacific Northwest wine brands also cut into Constellation’s sales. The company, which also markets Corona beer, has been paring down its brand portfolio to focus on its most popular.

Sales of beer, though, were hurt by fewer customers buying Corona bottles at bars, restaurants and convenience stores, said Chief Financial Officer Bob Ryder. Corona is higher priced than some domestic brews.

Deutsche Bank analyst Marc Greenberg said in a note to investors that he was concerned that “business appears to be worsening — especially for beer.”

Constellation Brands said it is ramping up its marketing efforts for Corona Extra during the peak summer sales season.

The company also has cut costs to offset the effects of the “turbulent global economy.”

The company maintained its forecast for 2010 adjusted earnings of $1.60 to $1.70 per share. Analysts expect full-year profit of $1.62 per share.

AP Business Writer Michelle Chapman contributed to this report.