Constellation Brands Inc (STZ)

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Constellation Brands, Inc. (STZ)

F1Q11 (Qtr End 05/31/2010) Earnings Call

July 1, 2010 10:30 a.m. ET

Executives

Patty Yahn-Urlaub - VP, IR

Rob Sands - President and CEO

Bob Ryder - CFO

Analysts

Vivien Azer - Citigroup

Tim Ramey - D.A. Davidson

Reza Vahabzadeh - Barclays Capital

Lauren Torres - HSBC

Lindsay Drucker-Mann - Goldman Sachs

Mark Swartzberg - Stifel Nicolaus

Kevin Dryer - Gabelli & Company

Christine Farkas - Merrill Lynch

Carla Casella - JPMorgan

Presentation

Operator

At this time I would like to welcome everyone to the Constellation Brands first quarter 2011 earnings conference call. (Operator Instructions) I would now like to turn the call over to Patty Yahn-Urlaub, Vice President, Investor Relations.

Patty Yahn-Urlaub

Good morning everyone and welcome to Constellation's first quarter fiscal 2011 conference call. I am here this morning with Rob Sands, our President and Chief Executive Officer; and Bob Ryder, our Chief Financial Officer.

This call complements our news release which has also been furnished to the SEC.

During the call, we may discuss financial information on a GAAP comparable organic and constant currency basis. However, discussions will generally focus on comparable basis financial results. Reconciliations between the most directly comparable GAAP measure, and these and other non-GAAP financial measures are included in the news release or otherwise available on the company's website at www.cbrands.com under the Investor section.

Please also be aware that we may make forward-looking statements during this call. Although statements represent our best estimates and expectations, actual results could differ materially from our estimates and expectations. For a detailed list of risk factors that may impact the company's estimates, please refer to the news release and Constellation's SEC filings.

And now I'd like to turn the call over to Rob.

Rob Sands

Thanks, Patty, and good morning everyone and welcome to our discussion on Constellation's first quarter sales and earnings results. We're off to a good start for the year, with results that were generally in line with our expectations.

I believe the highlight of the first quarter relates to the fact that we are beginning to realize the benefits from our consolidation of our U.S. distribution network in key markets and the implementation of our new go-to market strategy.

Remember, it was during last year's first quarter that we began to scale back promotional activities for our U.S. wine and spirits business in advance of the initiation of our U.S. distributor consolidation program and sales force restructuring efforts. And we did not increase promotions to more normalized levels until the end of last year's third quarter, in advance of our holiday selling season. Nonetheless, in the market, promotional activity has remained strong throughout this period, especially in the premium plus category.

Now having completed the most significant phase of our U.S. distributor transition, during this year's first quarter, we increased promotional activities and brand investments, launched new products, and began to improve our in-store execution at retail.

Some examples of these activities include, continuation of what we call the biggest holiday ever promotion during Easter, new product launches including the introduction of blufeld German Riesling, Arbor Mist, White Pear Pinot Grigio, Black Box Malbec and Woodbridge sparkling wines, brand investment in Spectrum, relaunch of Ravenswood No More Wimpy Wines campaign using digital media. Collectively these efforts drove improved marketplace depletion growth in the mid-single digit range for our U.S. wine business.

And as I mentioned last quarter, we are refocusing our energies towards improving depletions and consumer takeaway, and we made measurable progress toward this goal.

We expect to grow our U.S. wine business in line with total industry growth trends, and are working diligently to achieve this target as we progress through fiscal 2011.

Current growth in the IRI channel remains healthy at about 5% on a dollar basis according to recent 12-week IRI data. In particular, the super premium plus segment where wine sells for greater than $8 a bottle at retail is currently growing at double digit rates.

And within these price segments, many of our leading well-known brands continued to perform well in the marketplace, including Robert Mondavi Private Selection, Blackstone, Clos du Bois, Estancia, Toasted Head, Simi, Franciscan, Wild Horse, and Kim Crawford.

In fact with our streamlined portfolio, our top 15 U.S. wine brands represent the vast majority of our U.S. wine profitability. And it's these brands that are growing at a pace faster than the market due to our U.S. distributor consolidation efforts and our renewed focus on building and promoting our brands.

During the quarter, Constellation gained international recognition at having some of the best and most powerful brands in the industry. The 2010 Power 100 List recognizes the world's most powerful line in spirits brands. This year's list includes several of our brands, with SVEDKA as one of the most powerful vodka brand and Black Velvet as one of the most powerful whisky brands. Robert Mondavi and Hardys are two of the most powerful wine brands, and Paul Masson Grande Amber Brandy is one of the most powerful brandy brands.

In addition, Beverage Information Group recently recognized Constellation with three fast track awards for our Black Box, Kim Crawford and SVEDKA brands.

In early June, Constellation participated in the inaugural Ultimate Wine Challenge in New York City, which is a professional tasting event of nearly 500 wines, representing 15 countries and 43 Appalachian. The Chairman's trophy was awarded to the best wines in 23 different wine categories. Constellation won trophies for Nobilo Sauvignon Blanc, 2009, Hogue Cellars Genesis Riesling '08, Simi Cabernet Sauvignon 2006, Clos du Bois Pinot Noir 2007, and Ravenswood Napa Valley Zinfandel 2007.

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