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Constellation Brands Management Discusses Q1 2013 Results - Earnings Call Transcript

Stocks in this article: STZ

Bill Hackett and the Crown team have built an absolutely phenomenal business driven by their strength in brand building and the strong relationships they have established with distributors and retailers in the marketplace. This is a perpetual agreement that has an initial term of 10 years and renews automatically for subsequent 10-year terms. In addition, ABI has the right, but not the obligation, to exercise a call option at a multiple of 13x EBIT for the Grupo Modelo brands, approximately one year prior to the expiration of any 10-year term subject to regulatory approval.

This arrangement will dramatically enhance Constellation's financial profile as it will result in the full consolidation of Crown's financial results within Constellation's existing business model upon closing. Bob will have specifics related to the funding of the deal and the high-level financial implications for Constellation in just a few moments.

In the wine business, we are also pleased to announce today that we are purchasing the Mark West brand, which represents a synergistic, high-growth, complementary tuck-in to our existing portfolio of wine brands.

Mark West is primarily a California pinot noir that is priced in the $10 to $12 price range at retail. In 2011, Mark West sold nearly 600,000 cases in the U.S. marketplace. It is currently the top-selling pinot noir brand experiencing nearly 35% volume growth in the SymphonyIRI channel.

As you know, we have successful -- we have a successful track record of integrating high-growth, strong-momentum brands, and I am excited by the prospect of adding Mark West to our brand family.

And now I'd like to just -- to focus our discussion on our first quarter operational results. We are off to a good start for the year with results that were generally in line with our expectations. Highlights for the first quarter include: the purchase of almost 70% of our targeted share buybacks for the year; great momentum for the Crown beer business; strong consumer takeaway trends for our U.S. wine and spirits business; the completion of the next phase of our U.S. distribution consolidation effort with the signing of exclusive multiyear agreements with additional U.S. distributors, covering almost 10% of our U.S. wine and spirits volume. Collectively, we now have almost 70% of our U.S. wine and spirits business covered by exclusive distributor arrangements.

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