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Imported-beer sales fuel growth at Constellation

Analysts tracking Constellation Brands Inc. expect imported beer to fuel most of the company’s growth when it reports third-quarter earnings.
The Fairport-based Constellation is expected to release the numbers on Jan. 4.
“Imported beer is their most important business from (the standpoint of) contribution to earnings growth,” said Mark Swartzberg, a beverage analyst with Salomon Smith Barney Inc. based in New York City. “It is big and growing the fastest.”
Salomon Smith Barney estimates the company will post earnings per share of $1.85. The consensus on Wall Street is $1.86, Swartzberg said.
He said Constellation could report more than 20 percent growth in imported beer shipments during the quarter.
More stores and restaurants are carrying the beers that Constellation markets and distributes, including Corona Extra of Mexico, St. Pauli Girl of Germany, Peroni of Italy and Tsingtao of China.
Imports have grown to claim 10 percent of the market, up from 7 percent five years ago, said Jeffrey Becker, president of the Beer Institute. The trade organization represents more than 100 breweries and roughly 93 percent of all beer brewed in the country.
“Imports is the fastest-growing segment and Mexico is driving that growth,” Swartzberg said.
Corona Extra is the No. 1 imported beer in the United States. Constellation promotes and distributes the brand in 25 states, mainly located in the West. It is the fifth-largest selling beer in the world.
“(Constellation’s) beer portfolio should continue to be strong (in the third quarter),” said Carla Casella, vice president and analyst at Chase Securities Inc. “They’ve been expanding their distribution.”
One reason more consumers are buying Corona and other imports is the narrowing price gap compared to domestic brands, which have increased in price, Casella said.
More restaurants want to carry Corona because of its No. 1 status, which helps sell more product, she noted.
Premium wine-with brands such as Franciscan Oakville Estate and Simi-also are expected to drive Constellation’s third-quarter earnings.
The holiday season is a strong season for premium wines, Casella said.
“Since they’ve owned (Franciscan and Simi), they have benefited from a larger sales force,” she said.
The brands, acquired last year, previously were owned by two smaller companies. When Constellation bought them, it expanded sales coverage with nationwide distribution, she said.
Casella also expects to see incremental growth from the company’s spirits category.
Last year, Constellation bought a number of brands from Diageo PLC, including Black Velvet Canadian Whisky and Canadian LTD. Diageo sold them because they were non-core brands.
Before they were sold, these products were not heavily promoted. But when Constellation bought the brands, it revamped them and the sales force began to feature them, Casella said.
Salomon Smith Barney’s Swartzberg expects 15 percent earnings growth in the third quarter, which is right in line with the company’s long-term targets.
Looking ahead, he said one way to accomplish Constellation’s growth targets is through more acquisitions.
“Our ears are going to be perked up to (hear news) related to the Seagram situation,” Swartzberg said.
Last week, Diageo and Pernod Ricard SA signed an agreement to acquire Seagram Co.’s prized spirits and wine group for $8.15 billion from Vivendi Universal SA.
Diageo will put up $5 billion and Pernod Ricard will contribute $3.15 billion in the deal, which redistributes brands such as Chivas Regal Scotch whisky and Captain Morgan rum. It is contingent upon clearance by antitrust regulatory authorities, which the companies are confident they can win, according to reports in the Wall Street Journal.
Diageo and Pernod will divvy up Seagram’s 400-plus brands and likely will sell those that are considered non-core. That secondary auction of brands is likely to attract huge attention in coming months, the newspaper reported.
“Everyone knows there will be leftover brands for sale,” said Swartzberg, who added that any information the Fairport company provides on whether it will pursue some of these brands will spike considerable interest among analysts.
He does not know which, if any, brands Constellation might be interested in. He also does not expect Constellation to shed much light on the subject because it might complicate the bidding posture for brands such as Seagram’s Wine Coolers.
In fiscal 2000, Constellation posted sales of more than $3 billion. Casella said the company’s beer portfolio made up 24 percent of total sales; branded wines, 30 percent; spirits, 11 percent; Franciscan, nearly 3 percent; and Matthew Clark PLC, 31 percent.
Chase Securities expects earnings before interest, taxes, depreciation and amortization in the range of $90 million to $100 million.
Beer and premium wines will continue to drive the company’s growth in the final three months of Constellation’s fiscal year, Casella predicted.
“But typically, the fourth quarter will be a little softer than the third,” she said.



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