July 2 - Constellation Brands disappoints with earnings due to higher grape costs, but lifts full-year profit outlook. Fred Katayama reports.
No toasts for Constellation Brand's first quarter results. The world's largest wine maker with brands like Mondavi and Ravenswood disappointed Wall Street. Earnings fell 27 percent to 52-point-9 million dollars, breaking a five-quarter streak of positive surprises. Higher costs for grapes and overhead squeezed profit. Sales of wine rose during the seasonally slow period and beer sales increased despite poor weather in the U.S., but overall sales missed estimates. Investors have been very bullish on Constellation's prospects. Its stock has vastly outgunned its peers, gaining more than 150 percent since the start of last year. Investors were excited over the company's diversification into beer after it bought the U.S. business of the Mexican brewer, Modelo, last month. Imports are growing faster than domestic brands, and Mexican labels are the most popular among them. And so, analysts were rather optimistic despite the poor quarterly results. Bank of America Merrill Lynch analyst Bryan Spillane writes, "We continue to be bullish on the potential for organic improvement in wine due to the impact of higher wine supplies, a growing category and marketing efforts. We also view the pending transaction to acquire the U.S. rights to Modelo brands as value enhancing." Anticipating lower interest expenses, Constellation boosted its outlook for the full year. But SunTrust believes that guidance will prove conservative given the synergies from the beer deal.