A stronger focus on new product development is coming to Constellation Brands Inc.
Local expansion is in the works as well, as the company adds product lines and workers to its Canandaigua wine-making facility, said Robert Sands, president and CEO, during an interview with the Rochester Business Journal last week at the company's Victor headquarters.
"We have stepped up our innovation and new product development so it is in line with our focus on driving business for the future," Sands said. "We are working to increase our pipeline of new products to resonate with consumers."
Sands is to discuss Constellation Brands' last and current fiscal years at the firm's annual shareholders meeting today at Nazareth College of Rochester.
Last year's earnings were weaker due to the company's decision to invest more in marketing and promotional activities to promote its brands, he said.
For the fiscal year that ended Feb. 29, Constellation Brands reported net income of $445 million, or $2.13 a share, down from $559.5 million, or $2.62 a share, a year earlier. Excluding special items, the company posted a profit of $488 million, or $2.34 a share. Sales were $2.65 billion, down 20 percent from $3.32 billion in fiscal 2011.
The sales drop was due primarily to the divestiture of the Australian and United Kingdom wine business, while higher marketing costs affected net income.
Constellation Brands introduced roughly 25 new products and product extensions last fiscal year, including a line of wines in collaboration with musician Dave Matthews called Dreaming Tree and an un-oaked line of wines called Simply Naked.
In addition to a couple of new brands this fiscal year, the business plans to introduce more than 40 new offerings into the marketplace.
That includes the release this summer of Thorny Rose, a wine brand intended for the millennial generation, those ages 21 to 34, which is a growing demographic in the wine industry. Another new offering is a coconut-flavored version of its Svedka vodka brand.
Sands said the firm has made a significant investment to its Canandaigua facility, spending roughly $1.8 million to support the production of a new line of Arbor Mist frozen wine cocktails in 10-ounce, single-serving pouches.
The wines come in three flavors-Blackberry Merlot, White Pear Pino Grigio and Strawberry White Zinfandel-and are produced at the Ontario County plant. The business is adding two production lines for the product and has added roughly 16 workers, the company said.
"We are very optimistic about this year," Sands said.
Constellation Brands has roughly 620 local employees and ranked 10th on the most recent Rochester Business Journal list of manufacturers.
The company also just completed its acquisition of the Mark West pinot noir brand for roughly $160 million. Launched in 2002, Mark West is primarily a California pinot noir that has grown into a nearly 600,000-case brand selling in the United States for $10 to $12 a bottle.
Shares of Constellation Brands (NYSE: STZ) were trading at midweek around $28.30, at the high end of their 52-week range of $16.42 to $29.48.
Wall Street responded favorably to news this month that Constellation Brands had announced a deal with Anheuser-Busch InBev to acquire the remaining half of its Crown Imports LLC joint venture for $1.85 billion. The acquisition will give Constellation total control of distribution of popular Corona beers, among other products, in the United States.
That will nearly double the company's annual sales to roughly $5 billion, Sands said.
"It was our crowning achievement this year," he said.
Once the deal is finalized in the first quarter of 2013, sales will be split roughly evenly between Constellation Brands' beer segment and its wine and spirits business.
Constellation Brands owns half of Crown Imports, a 50-50 joint venture with Grupo Modelo S.A.B. de C.V. Constellation signed a definitive agreement with AB InBev to purchase the remaining interest as AB InBev completes its proposed acquisition of Modelo, a Mexican firm, in a reported $20.1 billion deal.
Acquiring all of Crown Imports also will allow Constellation Brands to pursue domestic and imported beer brands to enhance its portfolio of premium alcoholic beverages.
Sands said last week that it is too early to tell which beer brands might be attractive acquisition candidates. One possible arena the business could look to enter is craft beers, whether developing a brand or buying an existing product.
Sands noted that craft beers and Mexican imports are two of the fastest-growing beer categories.
Crown's brands include Corona Extra, Corona Light, Modelo Especial, Pacifico, Negra Modelo and Victoria. Corona Extra is the best-selling imported beer and the No. 6 beer overall in the U.S. Corona Light is the leading imported light beer, and Modelo Especial is the third-largest and one of the fastest-growing major imported beer brands.
Constellation has been the importer, marketer and seller of the Modelo brands in the United States for almost two decades.
Sands does not expect any major changes in the business, noting that Crown's few hundred employees will remain based in Chicago. And while the acquisition will bring no major changes to Constellation Brands' local operation, the deal benefits the company, which means it is likely to have a positive impact on operations here, he said.
Fiscal year 2013
On June 29, Constellation Brands released its first-quarter 2013 results, which included net income of $72 million, or 38 cents a share, down from $74.5 million, or 35 cents a share, a year ago; earnings per share rose because of fewer shares outstanding. Excluding restructuring charges and other items, first-quarter earnings were 40 cents a share.
The company logged sales of $634.8 million, down less than 1 percent from $635.3 million a year ago. The declines in the recent quarter's results largely were due to higher promotional costs and a decrease in volume, partially offset by favorable product mix, the company said.
Analysts polled by Thomson Reuters had expected Constellation Brands to report earnings per share of 39 cents on sales of $646 million.
Constellation maintained its forecast for fiscal 2013 adjusted earnings of $1.93 to $2.03 a share.
Ken Perkins, an analyst with Morningstar Inc., wrote in a recent research note that Constellation has improved substantially after divesting its low-margin United Kingdom and Australian wine segments.
"We expect that a portion of these improvements will be sustainable but also anticipate that additional promotional spending could offset recent gross margin expansion," Perkins wrote. "We also expect that competition in the wine industry will remain fierce and promotional spending will be necessary to drive volume growth."
He noted, however, that brand loyalty is weaker in the wine category in comparison to wine and spirits.
"The fragmented and crowded nature of the wine industry could make above-average earnings growth difficult to attain in the long term," Perkins said.
The business and the Sands family also plan to continue their philanthropic efforts in 2012 and 2013, Sands said.
Constellation made recent donations to the Constellation Center for Health and Healing at F.F. Thompson Hospital in Canandaigua, as well as the Sands-Constellation Heart Institute at Rochester General Hospital.
Sands served as chairman for last year's campaign for the United Way of Greater Rochester Inc.
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