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Constellation Brands’ wine sales weaker than expected

Beer has boosted half-year profits for Constellation Brands, but the firm's wine business had a mixed six months.

Wine drinkers in the US are continuing to trade up to higher-priced brands, but industry giant Constellation Brands sold less than it expected in the first half of its fiscal year.

A significant boost from the acquisition of the Crown beer business saw Constellation’s overall net profits rocket for the six months to the end of August, to US$1.57bn versus just $196.6m in the same period of the previous year. Beer also enabled net sales to double, reaching $2.1bn.

However, the Robert Mondavi producer’s underlying results showed a mixed performance for its North American wine business.

Net wine sales increased by 4% for the six months, to $1.23bn, although the pace of growth slowed to 2% in the second quarter and the figures were also partially inflated by the first-time inclusion of Mark West wines, acquired in late 2012.

‘Over the shorter-term, wine consumption has been a little weaker than we anticipated,’ Constellation’s chief executive, Rob Sands, said on a conference call.

During the half-year, the group was also hit by $300m of one-off charges related to the poor performance of lower-priced wines in its Canadian business.

Sands was more upbeat about the prospects of premium wine in the US, and imported wine in Canada, backing up the company’s decision to invest $20m on winery and vineyard expansion in its current financial year.

He said the ‘premium plus’ category ‘continues to be strong’, as is demand for super-premium and luxury wines. Constellation classes premium plus as wines above $5-a-bottle, according to a presentation it published in June.

Of the wine business performance, Sands added, ‘remember that wine was overlapping a peak period last year.

‘We expect the business for both wine and spirits to pick up quite a bit in the third and fourth quarters.’ These will include the key Thanksgiving and Christmas holiday season.

Written by Chris Mercer

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