Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Raising A Glass To Profit

By

Size, diversification and marketing are keys to success.

PrintPRINT
The wine craze may be over and beer sales may be flat, but savvy investors are still lifting their glasses to steady profits in the booze sector.

The keys: Size, diversification and marketing clout.

Constellation Brands (STZ), the world's largest wine company by volume, reported a solid fiscal first-quarter jump in profits based on price increases and sales of higher-margin brands such as Clos du Bois and Wild Horse.

The company earned $44.6 million, or 20 cents per common share, in the quarter ending May 31 compared with $29.8 million, or 13 cents per share, for the same period a year ago. Sales rose 3% to $932 million from $901 million.

Excluding one-time restructuring charges, the company said net income increased to 34 cents a share, beating analysts' estimates of 31 cents.

Constellation Brands serves tastes and wallets across the board with about 300 brands ranging from jug wine to top-of-the-line California reds. It also offers imported beer along with Fleischmann's vodka and Black Velvet, a Canadian whiskey.

Last December, Constellation bought Fortune Brands' (FO) line of wines, including Robert Mondavi and cheaper labels such as Geyser Peak. Constellation then sold value brands Alamaden and Inglenook, along with the Paul Masson winery, to Wine Group LLC, a San Francisco buyout firm.

Shuffling product offerings has paid off in a sector where consumer tastes constantly change. Meanwhile, pure-play beer companies have struggled.

Craft beer such as Boston Beer Company's Sam Adams (SAM) has its fans and the company launched a rousing IPO in 1996, but investors ask: Where's the growth?

Colorado's Coors and Canadian brewer Molson merged in 2004 and became Molson Coors Brewing (TAP). The new company swallowed rival Miller in 2007. Good move, but Anheuser-Busch (BUD) still holds about half the domestic beer market.

Anheuser-Busch rejected an unsolicited $46.35 billion takeover bid from Belgium's InBev NV; it now looks like the European company is preparing to muscle up and attempt a hostile takeover.

For many, beer is just suds and selling a ho-hum product in a slow-growth industry won't generate heady returns. But a company with an edge can stand out in a staid sector without a broad array of products like Constellation Brands.

In 1998, Horizon Organic Holding went public at $11 a share, the high end of the price range, and ended the first day of trading at $15.06. The hook for investors is in the name: Consumers are willing to pay a premium for just about anything organic. In 2003, Dean Foods (DF) bought out Horizon Organic, raising howls that the integrity of the products would be diminished. The Horizon Organic label, complete with smiling cow, still exists, because Dean Foods didn't buy the company to lose money.

Bigfoot corporations snapping up bright little companies that exude health and wellness has a long history. In 2000, Unilever (UL) scooped up Ben & Jerry's ice cream. In 2005, Pepsico (PEP) bought P J Smoothies.

Remember: "healthy" companies bought by bigfoot merchandisers aren't any less healthy for the selling shareholders.

Now, if we could just prove that beer prevents tooth decay or hair loss…
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE