Constellation Brands: Recipe for Disaster?

Oct. 4.09 | About: Constellation Brands, (STZ)

Constellation Brands (NYSE:STZ), which bills itself as the world’s largest wine company, headlines some positive results such as debt reduction of $155 million for the quarter and cost reduction benefits.

But revenues are down. It appears that consumers are not drinking away the recession. In fact, they are cutting back.

The company is highly leveraged so they have to squeeze out very significant debt service payments.

This is what concerns me. Sales are down and accounts receivable are up. This is a classic Finance 101 trouble sign. And management is not addressing this issue.

Perhaps more importantly is the question of foreign exchange. Spirits in general, and wine in particular, are a global business. If we are to believe that US currency will depreciate vs. other world currencies, how will this company fare? Management provides us with geographically segmented data on sales, but not on costs.

So if you depend on grapes from Australia or Argentina and wine sales in Manhattan, do you have an iceberg straight ahead?