Shares of Constellation Brands fell to a two-year low after the company provided a weak fiscal-year 2008 forecast, citing ongoing challenges in the U.K. retail environment and an oversupply of Australian wine.
The world's largest wine maker by volume estimates fiscal 2008 earnings before items of $1.30 to $1.40 a share, or net income of $1.21 to $1.31 a share.
Sales are expected to decline 12% to 14%, hurt by a change in the way it reports its Crown Imports joint venture.
Analysts on average expected the company, whose brands include Robert Mondavi wine and Effen vodka, to earn $1.83 a share for 2008, according to Thomson Financial.
Constellation shares fell as low as $18.92, setting a two-year low for the stock. Previously, the stock fell as low as $19.65 in November 2004. The stock was among the biggest moves in the market on Thursday.
The Fairport, N.Y., company has been hurt by an oversupply of wine from Australia and by a consolidation of retailers in the U.K. Both of these factors have put pressure on prices. This trend has made it difficult for the company to recover additional costs that include an annual duty hike in the U.K.
In addition, the company would be hurt by a plan to reduce wine inventory levels in the U.S. as it tries to streamline its supply-chain management system.
Citigroup analyst Bonnie Herzog said she expected a negative reaction from the market, but she added that the inventory issue could be short-term.
"We believe that the step down in inventory levels could be a one-time event as Constellation Brands stated that the U.S. and Canadian branded wine businesses are expected to perform well," Herzog said, in a research note.
Goldman Sachs' Judy Hong, however, called the 2008 earnings forecast "a clear isappointment," particularly since analysts and investors were anticipating gains from a prior merger and from the formation of Crown Imports.
"Management's credibility with investors is not likely to be very strong, so we expect skepticism about prospects for a fiscal year 2009 recovery," Hong said, also in a research note.
For fiscal 2007, Constellation continues to expect it will earn between $1.65 to $1.70 a share. The company also expected to complete its acquisition of Svedka vodka later this month and said it would buy back $500 million of its own stock.