Constellation Brands Thursday posted a quarterly profit far above Wall Street estimates, as its efforts to cut the amount of wine it ships to U.S. distributors did not hurt sales as much as expected.
The owner of Robert Mondavi, Vendage and Ravenswood wines, whose shares were up over 5 percent in morning trade, also said Chief Executive Officer Richard Sands was stepping down, to be replaced by his brother, Robert Sands, currently the company's chief operating officer.
Richard Sands, 56, will remain chairman of the board. The Fairport, New York-based producer and marketer of alcohol will no longer have a COO.
Constellation , whose business in Britain has been hurt by an oversupply of grapes from Australia that has flooded the market with inexpensive wine, said net income was $29.8 million, or 13 cents per share, for the first quarter that ended May 31, down from $85.5 million, or 36 cents, a year ago.
Constellation, which also imports Corona Extra, St. Pauli Girl and Tsingtao beers, said it earned 21 cents per share excluding items, topping analysts' average estimate of 15 cents per share, according to Reuters Estimates.
Quarterly net sales were $901.2 million, down from $1.16 billion a year ago, hurt by a change in the way Constellation accounts for sales from its Crown Imports and Matthew Clark joint ventures and a 13 percent drop in North American wine sales due to a decision to lower distributor inventory levels.
But the sales impact of the plan, implemented in order to keep shipments in line with distributors' needs, was much less than one analyst was expecting after the company forecast that two thirds of the $160 million to $190 million sales reduction would occur in the first quarter, with the remaining third falling in the second quarter.
"One of the biggest upside drivers (to the earnings) appears to be that Constellation did not deload as much of the planned inventory in the first quarter as expected," Morgan Stanley analyst William Pecoriello wrote in a research note.
Pecoriello said he was expecting North American wine sales to fall 31 percent.
European wine sales were up 11 percent, excluding acquisitions, reversing trends in what had been a troubled market.
"Constellation is showing better trends in its struggling European wine division," said Goldman Sachs analyst Judy Hong, who had been expecting a 3 percent decline.
Sales of spirits, which include Effen vodka, 99 Schnapps and Ridgemont Reserve 1792 bourbon, rose 16 percent, helped by the acquisition of SVEDKA Vodka.
The company affirmed its full-year outlook for earnings per share in the range of $1.30 to $1.40, excluding items.
"The fact that the company did not change its full-year sales forecast or earnings guidance leads us to believe that more of the (wine inventory deload) will fall in the second quarter than previously expected/guided," Pecoriello said. "In North America, the wine market remains healthy," CEO Richard Sands said in a statement. "Consumer demand is strong and they continue to trade up to premium and luxury wines, with Woodbridge by Robert Mondavi, Toasted Head, Blackstone, Estancia and Simi as examples of our brands that have been benefiting from this trend."
Constellation shares, which have gained nearly 18 percent over the last three months, were up $1.22, or 5.1 percent, at $25.35 on the New York Stock Exchange. The shares currently trade at 17.6 times earnings estimates for the current fiscal year, according to Reuters data.