Constellation Brands Foresees a Bad Vintage for Profits in 2013

Although Constellation Brands Inc. (NYSE:STZ) expects sales to increase this year as the U.S. wine and spirits industry improves along with the economy, the largest branded wine maker in the world is projecting earnings for its current fiscal year will fall well below Wall Street’s estimates. Shares have slumped as much as 13.9 percent with the news, making the stock the New York Stock Exchange’s biggest loser of the day.

The company said it believes expenses involved with marketing and sales of its new wines will hold down profit growth in the short term. Constellation, which already sells the Robert Mondavi and Ravenswood brands, has added other wine brands like Simply Naked, Primal Roots, and The Dreaming Tree to its portfolio. Free cash flow is also expected to decrease sharply this year for the company due to the absence of tax benefits that increased cash flow in the previous fiscal year.

On Thursday, Constellation said it expected earnings of $1.93 to $2.03 per share, excluding one-time items, for fiscal 2013, which began March 1. Analysts’ average estimate was $2.23 per share, according to Thomson Reuters I/B/E/S. Constellation earned $2.34 per share in fiscal 2012.

The wine company also anticipates completing half of a new $1 billion share buyback authorization this year. Along with the buyback authorization it already has in place, Constellation said it will likely spend between $550 million and $600 million this year buying back shares, exceeding the expectations of some analysts.

Although UBS analyst Kaumil Gajrawala said the amount of projected share buybacks makes the 2013 forecast “even more disappointing,” he found Constellation’s sales outlook encouraging and reiterated his Buy rating on the stock.

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