The outlook is grim
For its fourth quarter, Constellation reported a net loss of USD 406.8 million compared with a prior-year net loss of USD 834.8 million.
Net sales, which exclude excise taxes, decreased 17 percent to USD 735 million.
Gross margin fell to 26 percent from 35.2 percent.
The company has been shifting its focus to higher-priced products, where most of the growth has been in the alcoholic beverages industry in recent years.
According to Constellation, branded wine sales, which represent the bulk of its earnings, fell 4 percent amid a sharp decline in demand in Europe. Spirits sales increased 6 percent, driven by the growth of Svedka vodka brand.
North America continues to generate growth for the wine industry as consumers are still trading up, though not at the rate of prior growth.
In recent months, analysts have taken a close interest in the fate of the Corona Extra beer brand, which is being imported into the U.S. by Crown Imports, a 50:50 joint venture between Constellation and Mexico’s Grupo Modelo.
Brewed by Grupo Modelo, Corona Extra has been the nation’s number one imported beer since 1997, when it surpassed Heineken.
According to Beer Marketer’s Insights, a trade publication, Corona Extra had a 28.4 percent share of the imported beer market in 2008, with Heineken in second at 17.8 percent.
Including domestic brews, Corona ranked sixth in 2008, outselling such cheaper beers as Busch, Michelob and Miller’s High Life and Genuine Draft brands.
Still, sales of Corona Extra dropped 4.6 percent last year, the second consecutive annual decline, according to Beer Marketer’s Insights. And its overall market share has slipped to 3.6 percent from 3.9 percent in 2006.
Corona’s slide, coupled with a drop in Heineken shipments, pushed overall import sales—as measured by cases of beer— down 2.3 percent last year, according to market researcher Nielsen.
It has been argued that craft beers are stealing business from Corona Extra, which is also under pressure from Anheuser-Busch’s Bud Light Lime, a beer and lime mix.
Part of the problem for Corona Extra was a price increase in 2007, industry analysts say. Domestic brewers didn’t raise prices until months later, leaving a larger-than-usual price gap just as the economy started to decline.
Crown Imports has announced increased promotional activities for Corona Extra this year, which may help offset the impact of the recession. But what these promotions will do for profits – that’s textbook economics.
Constellation Brands on 25 March 2009 announced it expects per-share earnings of USD 1.60 to USD 1.70 for this fiscal year.
