Constellation Brands ride trading roller coaster Wednesday

Constellation Brands, whose portfolio includes Mondavi Wines and Svedka Vodka brands, reported stronger than expected fiscal third-quarter earnings Wednesday, helped by a sharply lower tax bill. Shares of Constellation Brands Inc. rose in morning trading then fell to close lower.

The company boosted advertising for Modelo, a Mexican beer that Constellation distributes. It was the first ever English-language campaign for Modelo, company executives said.

“We are gaining market-share and have strong marketplace momentum,” CEO Rob Sands told analysts in a conference call. “We are well on our way to reaching our financial goals for the year.”

In the quarter ended Nov. 30, Constellation earned $109.5 million, or 58 cents per diluted share, a 4.5 percent increase from $104.8 million, or 47 cents per diluted share, in the year-ago period. Sales rose 9.4 percent to $766.9 million from $700.7 million last year.

Excluding one-time items, Constellation would have earned 63 cents per diluted share. Analysts surveyed by Yahoo Finance were expecting to earn 55 cents on an adjusted basis.

Although sales were up 5 percent to $2.86 billion from $2.73 billion in 2011, income was down 7 percent to $415.6 billion from $446.8 million last year. According to Constellation executives, the depressed income was a result of large investments in beer marketing and the impact of an increase in bulk wine purchases as a result of poor raw grape harvests in 2012.

Sands also pointed to the affects the fiscal cliff had on the holiday selling period, more specifically the drop in the number of retail shoppers. But, while the overall bottom line was down from a year ago, Constellation executives remain optimistic about the upward trend in wine sales, which Sands said he expects to continue.

“Wines premium and super premium are still up 3 percent and our business performed on par with our holiday season expectations,” Sands said in a conference call with analysts.

Third quarter sales were up 9 percent according to Sands, in large part due to the continued performance of the Mark West brand, which makes the top-selling Pinot noir and had volume growth of 30 percent.

According to Sands, the Mark West brand was acquired with no hard assets, just the brand and its established grape contracts.

“The returns can be better because it gets plugged into an existing winery and it leverages current fixed costs,” Sands said.

Mark West Wines was acquired from Benham’s Purple Wine Co. in late June for $160 million.

Also contributing to the rise in wine sales is the excellent performance of the Opus One brand, particularly in Asia and Europe. According to Constellation executives, Opus One usually sells out of its vintage stock and this year the California based winery experienced a strong harvest, yielding more raw grapes, resulting in more salable product.

For the first nine months, Constellation earned $306.1 million, or $1.62 per diluted share, down 10.5 percent from $342 million, or $1.62 per diluted share, the nine-month period last year. Sales rose 3.7 percent to $2.1 billion from $2 billion last year.

Constellation closed down $1.43, trading at $35.82 per share. Despite a clumsy day of trading, possibly due to poor holiday sales, Constellation is still up 51 percent from a 52-week low of $18.50.

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