Constellation Brands Sours on Wine Sales

VICTOR, N.Y. ( TheStreet) -- Constellation Brands ( STZ) shares fell sharply Thursday as the wine company booked sluggish quarterly sales.

The distributor of Robert Mondavi wine, Svedka vodka and Corona beer posted net income of $139.3 million, or 65 cents per share, more than tripling year-earlier profits of $44.1 million, or 20 cents per share, thanks to fewer charges and a lower tax rate. That beat analysts' consensus call for earnings of 62 cents per share.

Excluding a one-time loss of $6 million in costs related to its cider business sale, Constellation would have earned 66 cents per share.

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Constellation Brands also lifted its full-year outlook, forecasting earnings of $1.80 to $1.85 per share, up from its previously announced guidance for EPS between $1.63 and $1.78.

Still, investors seemed unimpressed, focusing instead on Constellation's 2% dip in revenue to $966.4 million, reflecting a 3% decrease in wine sales. Wine sales make up about 90% of Constellation's revenue.

Beer and spirits sales were up in the recent quarter driven by demand for Svedka vodka and its beer joint venture with Mexican brewer Grupo Modelo.

Analysts at Goldman Sachs ( GS) noted that Constellation's quarter was weaker than expected despite Constellation's EPS beat.

"Operating performance came in weaker than expected, as operating income was 9 cents below our estimate on softer sales and margins, partly offset by higher joint venture income from Modelo (+$0.03), interest expense (+$0.01), and a lower tax rate (+$0.10)."

Investors bid Constellation shares 5.1% lower to $20.47 ahead of midday amid heavier-than-normal volume. Nearly 4 million shares changed hands just two hours into the day's trading session, compared with their average daily trading volume of 1.5 million.

Constellation also said it plans to divest 80% of its Australian and British wine business for around $230 million, a sale that would lower its rank to the second biggest winemaker in the world, behind privately held Calif.-based E.& J. Gallo Winery. The sale is expected to be complete in February.

"This is the right move for the company and positions us to better achieve the goals associated with our profitable organic growth strategy," said CEO Rob Sands. "Our third-quarter results demonstrate that our strategy is working."

-- Written by Miriam Marcus Reimer in New York.

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