Shares in Constellation Brands jumped nearly 9% yesterday as the company announced profits up 78% in the second quarter of this year.
Ruffino: ‘well-received in marketplace’
The world’s second-largest wine company reported earnings of US$162.7m, up from US$91.3m in the second quarter of 2010.
The reasons given were the low tax rate and continuing strength in demand for the company’s high-end wines. Shares rose US$1.68, or 8.97%, to close at US$20.40 on Thursday, exceeding Wall Street expectations.
Some analysts however have warned will ‘continue to be challenged’.
Constellation sold 80% of its Australian, South African and British businesses, which it said were underperforming, at the end of last year in order to concentrate on its international business and its premium wine portfolio, including operations in California, Canada and New Zealand.
Partly as a result of the sell-off, sales dropped 20% year-on-year to US$690.2m, from US$862.8m.
CEO Robert Sands said in a statement that he was pleased with the performance of the company and that the US wine and spirits market remains healthy despite a ‘challenging consumer environment’.
‘The underlying fundamentals of our business remain solid. We are investing additional resources behind key brands and routes to market while implementing changes to achieve cost savings and drive operational efficiencies.’
They were beginning to see ‘positive consumer takeaway’, he added as a result of new product development and ‘ramped up promotional programming’ and initiatives for the holiday season.
Sands mentioned brands such as Rex Goliath Moscato, Woodbridge Malbec and Ruffino Prosecco – the acquisition of which was completed recently – as being ‘well received in the marketplace’.
Constellation’s performance has been reported around the world in positive terms although there have been murmurs of dissent.
Analysts Morningstar Inc said Constellation shares still did not ‘represent a compelling risk/reward profile’.
On a statement on its website morningstar.com it went on, ‘Despite management’s efforts to shed underperforming assets of late, we still think Constellation lacks pricing power and will continue to be challenged by the consolidation that has occurred in the retail industry. Consumers maintain a significant number of choices when it comes to wine brands and have demonstrated little brand loyalty, which doesn’t bode well for Constellation over the longer term.’
Constellation’s brand portfolio includes Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Estancia, Ravenswood, Ruffino, Jackson-Triggs, Kim Crawford, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka.
Before last year’s sell-off it was the world’s largest wine producer but is now number two, behind E&J Gallo.
Written by Adam Lechmere