(Corrects spelling of United in paragraph 3)
* Expects Mexican brewery expansion costs to double to $1.1
* Sees higher costs hurting free cash flow in 2015
* Fourth-quarter adjusted profit tops analysts' estimate
* Sees full-year adjusted EPS $3.95-$4.15 vs est $3.95
* Shares down 5 percent; were up in early trading
By Siddharth Cavale
April 9 Constellation Brands Inc said it
expects to spend up to $1.1 billion - almost double its previous
forecast - to increase capacity at a Mexican brewery, hurting
its full-year profit and cash flow forecasts and sending its
shares down 5 percent.
The company, which makes Svedka Vodka and Robert Mondavi
wine, also reported a better-than-expected fourth-quarter
quarter profit, helped by strong sales of beers such as Corona
and Modelo in the United States.
The growth in beer sales was largely driven by its
acquisition last year of partner Grupo Modelo SAB de CV's
stake in a joint venture to produce and sell beer
in the United States. Grupo Modelo was bought by Anheuser-Busch
The full control of Crown Imports LLC made Constellation the
largest supplier of wine, beer and other alcoholic drinks in the
United States and also gave it a brewery in Nava, Mexico.
The company has been concentrating its efforts on selling
more beer as sales of its wines and spirits stagnate. Beer sales
outstripped wine sales in the latest quarter and is expected to
do so again next year.
The expansion of the brewery would help Constellation meet
the rising demand for beer, and Stifel, Nicolaus & Co's Mark
Swartzberg said the higher spending was an indication of the
strength of the company's beer business.
"We take all of this (higher investment) as a mirror on
strong beer trends and continue to see an attractive risk/reward
based on the beer business and underlying cash flow," the
Constellation on Wednesday said it would have to spend $900
million to $1.1 billion to double the brewery's capacity, up
from its previous estimate of $500-$600 million. The company has
spent $140 million on expanding the brewery so far.
The bulk of the costs would go towards designing the brewery
to increase production and to be able to handle additional
capacity increases in the future, Chief Executive Rob Sands said
on a post earnings conference call.
BEER BOOSTS QUARTER
However, the higher costs would hurt the company's free cash
flow forecast of $425-$500 million for 2015, Chief Financial
Officer Bob Ryder warned on the call. The company had free cash
flow of $603 million in fiscal 2014.
Constellation said it expects full-year adjusted earnings of
$3.95-$4.15 per share. Analysts on average were expecting a
profit of $3.95 per share before taking in to account the higher
The company said it expects beer sales to grow in the
mid-single-digit percentage range in 2015. Wine and spirit sales
are expected to grow in the low-to-mid single digit percentage
Beer sales rose 13 percent in the fourth quarter ended Feb.
28, while wine and spirits organic sales rose just 1 percent.
Constellation's beer sales grew as its brands such as Corona
are mostly consumed in the south, a region relatively unaffected
by the severe winter that blanketed many parts of North Eastern
U.S., Societe Generale analyst Nicolas Ceron said.
The acquisition of Crown Imports has helped the company's
beer sales and drove most of the 86 percent rise in total sales
in quarter, the company said.
Total revenue rose to $1.29 billion, in-line with analysts'
average estimate, according to Thomson Reuters I/B/E/S.
Constellation's net income almost doubled to $157 million,
or 79 cents per share.
Excluding items, it earned 81 cents per share, topping the
76 cents per share analysts on average were expecting.
Constellation's shares rose as much as 5 percent in early
trading on Wednesday, but reversed direction trade down about 3
percent at $78.95 in afternoon trading.
The stock has gained nearly 16 percent this year.
(Additional reporting by Devika Krishna Kumar in Bangalore;
Editing by Savio D'Souza)