Constellation's Q4 Beats Our Estimates

| About: Constellation Brands, (STZ)

Constellation Brands Inc (NYSE:STZ), a leading global wine, spirits and other beverage producing company, reported fiscal 2010 fourth quarter earnings excluding non-recurring items of 27 cents per share (see conference call transcript here). The earnings exceeded the Zacks Consensus Estimate by 3 cents.

For fiscal 2010, Constellation reported earnings excluding one-time items of $1.69 per share, which also surpassed the Zacks Consensus Estimate by 3 cents. The quarterly results were primarily driven by global cost-cutting initiatives, de-levering of balance sheet, and continued stress on increasing sustainable free cash flow.

Consolidated net sales decreased 4% year-over-year during the quarter to $709 million, largely due to the divesture of value spirits business and partially offset by currency exchange rate fluctuations. Constellation is working diligently with its distributor network in the U.S. to minimize the operational disruptions and realign its sales force.

During the quarter, operating income in the wines segment decreased $22 million compared to the year-ago quarter, primarily due to a decline in U.S. branded wine sales. In order to boost the sagging sales, Constellation has increased its promotional activities through increased media coverage and targeted marketing programs.

For fiscal 2010, consolidated net sales decreased 8% year over year to $3.4 billion due to the divesture of value spirits business and unfavorable currency exchange rate fluctuations. Operating income in the wines segment decreased $37 million during the fiscal compared to the year-ago period.

Pre-tax restructuring charges, acquisition-related integration costs, and other non-recurring expenses decreased to $125 million during the quarter, compared to $468 million in the year-earlier quarter. In addition, interest expenses reduced 13% year over year to $63 million due to lower average borrowings during the quarter.

For fiscal 2010, pre-tax restructuring charges, acquisition-related integration costs, and other non-recurring expenses decreased to $275 million compared to $658 million in the previous fiscal. Interest expenses also reduced 18% year over year to $265 million. Total debt at fiscal-end 2010 decreased by over $600 million.

At fiscal-end 2010, Constellation had cash and cash equivalents of $43.5 million, and a free cash flow of $295 million. For fiscal 2011, the company anticipates generating free cash flow in the range of $350 million to $400 million.

Management authorized a share repurchase program of up to $300 million worth of common stock. Moving forward, Constellation expects the challenging economic headwinds to stabilize gradually, and anticipates fiscal 2011 earnings excluding non-recurring items in the range of $1.53 to $1.68 per share.