* Q3 profit $0.54; Street view $0.52
* Net sales off 4 percent, net income down 47 pct
* Reaffirms FY EPS view $1.60-$1.70
* Profits from Modelo JV down 26 pct, concerns about deal
* Constellation shares edge down
(Recasts first paragraph with better-than-expected result;
adds CEO comment, analyst; updates shares)
By Phil Wahba
NEW YORK, Jan 7 U.S. wine and spirits maker
Constellation Brands Inc (STZ.N) reported a better-than-
expected quarterly profit on Thursday as it cut costs, but
investors remained concerned by the disappointing results of a
joint venture with Mexico's leading brewer.
Constellation's shares were down 0.6 percent in early
The company, whose wine brands include Robert Mondavi, Clos
du Bois and Ravenswood, said sales of its branded wines and the
beers it imports had fallen in North America.
The company's sales and profit margins have suffered as
many consumers seek out lower-priced drinks in the economic
But Constellation has pruned its portfolio, closed some
facilities, cut jobs and consolidated distribution as it aims
to reduce its debt load, steps that are beginning to pay off,
an analyst said.
"Most of the hard work on the restructuring is likely
behind them now," said UBS analyst Kaumil Gajrawala.
Still, investors appeared wary about the weak sales and
profits from its joint venture with Grupo Modelo GMODELOC.MX
to import beers like Corona into the United States.
The company, which also makes Svedka vodka, owns 50 percent
of the joint venture, called Crown Imports, and said that net
sales from the venture fell 10 percent, with its share of the
profits down 26 percent, during the quarter.
"The bad news is Corona is weaker than expected - it's
completely understood that if you sell branded imported beers
versus domestics right now, there is a trade down," said D.A.
Davidson & Co analyst Tim Ramey.
Last month, Modelo filed a lawsuit against Constellation in
a dispute over their joint venture, sparking investor fears the
dispute could hurt a key portion of Constellations' business.
Constellation Brands Chief Executive Rob Sands said on a
conference call that Crown Imports' slump was easing and
forecast full year profits from the venture would be down in
the "mid-single digits."
Net sales fell 4 percent, with some of the sales decline
stemming from the divestiture of some of its spirits products,
the company said.
The drop in the sales of branded wines in North America
were partially offset by a 12 percent surge in Europe.
Constellation said that while sales to grocery stores had
stabilized, sales to bars and restaurants remained
Earlier this week, Constellation lost the chief executive
of its North American wine business, Jose Fernandez, to brain
cancer. The company has said the unit will be led by Jay
Wright, its president.
Constellation's net income fell 47 percent to $44.1
million, or 20 cents per share, in its fiscal third quarter
that ended on Nov. 30, from $83.5 million, or 38 cents per
share, a year earlier.
Excluding certain items, such as an impairment charge
related to its Ruffino joint venture, Constellation earned 54
cents per share. Analysts had forecast, on average, 52 cents,
according to Thomson Reuters I/B/E/S.
The company reaffirmed its earnings forecast for fiscal
2010, ending in February, of $1.60 to $1.70 per share,
excluding one-time items.
The company said it had paid off $336 million of debt since
the beginning of the fiscal year, allowing it to reduce
interest expenses by $64 million.
Constellation shares were down 9 cents to $16.04 in early
afternoon trading on the New York Stock Exchange.
(Reporting by Phil Wahba; additional reporting by Martinne
Geller; editing by John Wallace, Dave Zimmerman, Tim Dobbyn)