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Constellation Brands said Thursday FQ1 2008 net income dropped 65% as it implements its March decision to downsize U.S. distributor inventory levels, and on weak U.K. sales. Reported net income of $29.8 million was down from $85.5 million y/y. After items, EPS fell 31% to $0.21, ahead of analyst estimates of $0.15. Net sales fell 22% to $901 million; analysts were calling for $868 million. Management noted at the time that the inventory cuts would reduce short-term profits in order to help the company streamline its operations, "ultimately making the company's brands more competitive in the marketplace." The changes are expected to be mainly finished by the end of FQ2. A week ago, Constellation reiterated its F2008 EPS forecast of $1.16-1.26. Last month the company said a massive drought in Australia has curbed the wine glut there, allowing it to raise its U.K. prices now that the market is no longer being flooded by Australian wines. Constellation also announced Thursday that Robert Sands, 49, Constellation Brands 28 06 2007 Chartwill succeed his brother, Richard, 56, as CEO. Robert has previously been the company's president and COO. In a May 7 note, HSBC said it is satisfied with Constellation's "shareholder friendly" policies such as share repurchases and moving away from lower-margin businesses, but questioned its true organic growth in the face of both company- and industry-specific concerns. Shares dropped from $24 to below $20 in March when it announced the inventory reductions, but have since regained $24.

Sources: Press release, Wall Street Journal, AP I, II, Bloomberg
Commentary: Barron's Toasts Constellation Brands -- Shares Should Climb 25%Constellation Brands Vs. Diageo: A Good Stock Picking StudyWord on the Grapevine: Wine Stocks
Stocks/ETFs to watch: Constellation Brands Inc. (NYSE:STZ). Competitors: Diageo plc (NYSE:DEO), Molson Coors Brewing Co. (NYSE:TAP), Anheuser-Busch Companies Inc. (NYSE:BUD), Fortune Brands Inc. (FO), Heineken N.V. ADR (HINKY). ETFs: PowerShares Dynamic Food & Beverage (NYSEARCA:PBJ), Consumer Staples Select Sector SPDR (NYSEARCA:XLP), Consumer Discretionary SPDR ETF (NYSEARCA:XLY)

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Source: Constellation Brands Beats, Names New CEO

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