·	Net sales of $1.2 billion, up 15% over prior year

·	Reported net income up 2% to $82.4 million

·	Reported diluted EPS of $0.34 compared with $0.35 for the prior year

·	Comparable basis net income up 20% to $98.1 million

·	Comparable basis diluted EPS up 17% to $0.41

·	Net sales for wines segment up 19%

·	Net sales for imported beers up 9%

·	Net sales for spirits up 2%

·	Company updates fiscal year 2006 EPS guidance, provides third quarter EPS guidance

 

FAIRPORT, N.Y., Oct. 6, 2005 - Constellation Brands, Inc. (NYSE: STZ, ASX: CBR), a leading international producer and marketer of beverage alcohol, today reported net sales of $1.2 billion for the second quarter of fiscal 2006, up 15 percent over prior year.

“Strong performance by our U.S. branded wine and imported beers businesses, together with the addition of Robert Mondavi brands, resulted in another solid quarter of financial performance,” stated Richard Sands, Constellation Brands chairman and chief executive officer.

Net sales for the second quarter of fiscal 2006 included $110.2 million

 

Operating income, as reported under generally accepted accounting principles (“reported”), totaled $174.2 million, for the second quarter of fiscal 2006, or 14.6 percent of net sales, compared with $156.2 million or 15.1 percent of net sales for the second quarter of fiscal 2005. Reported net income for the second quarter increased two percent to $82.4 million, while diluted earnings per share for the second quarter totaled $0.34 compared with $0.35 for the prior year second quarter. Second quarter fiscal 2006 diluted earnings per share were impacted by additional shares outstanding.

Second quarter fiscal 2006 and 2005 reported results include acquisition-related integration costs, restructuring and related charges and unusual items. Net income and diluted earnings per share, on a comparable basis, exclude these costs, charges and items. Second quarter operating income, on a comparable basis, was $197.0 million or 16.5 percent of net sales, compared with $158.3 million or 15.3 percent for the prior year period. Second quarter net income and diluted earnings per share, on a comparable basis, increased 20 percent to $98.1 million and 17 percent to $0.41, respectively.

“We are pleased by the excellent operating margin expansion in the quarter,” stated Sands. “The margin expansion and solid bottom line performance were driven by true growth in the right categories, and demonstrates the benefits of our diversified product portfolio and geographic

 

For the second quarter fiscal 2006, Constellation wines net sales totaled $800.2 million, up 19 percent.

Net sales of branded wine in the United States increased 59 percent, primarily driven by the addition of Robert Mondavi and Ruffino brands. “The integration of these premium brands into our U.S. marketing and selling infrastructure is complete,” said Sands, who added, “As a result, we experienced robust marketplace trends as the Woodbridge, Robert Mondavi Private Selection, Robert Mondavi Winery and Ruffino brands generated solid volume gains during the last 12-week reporting period through Sept. 4, 2005, based on Information Resources, Inc.’s (IRI) food and drug channel data, compared with prior year results.”

The Icon Estates (formerly Franciscan Estates) portfolio, together with new products from Constellation Wine U.S., including Monkey Bay and Twin Fin, also contributed to growth in the quarter.  

“Monkey Bay Sauvignon Blanc is currently the top selling branded wine from New Zealand according to IRI data and our Twin Fin family of varietals epitomizing the California lifestyle has become the top-selling brand of all new wines introduced to date in calendar year 2005,” stated Sands. “These brands have been embraced by consumers and retailers. Their success, together with other new offerings such as Four Emus and Kelly’s Revenge from Australia, demonstrates the strength of our winemaking, selling and marketing teams’ ability to produce concept wines that appeal to consumers’ demand for fun-loving, fruit-forward wines of quality that fit their lifestyle.”

 

Continued growth in Blackstone, Ravenswood, Simi, Estancia and other brands in the portfolio reflects the ongoing consumer trend of trading up to premium, super-premium and fine wine brands in the marketplace.

Branded wine net sales in Europe were flat, including a two percent negative impact from currency. On a constant currency basis, branded wine net sales in Europe grew two percent, reflecting intensely competitive and challenging market conditions in the U.K.

“By leveraging our leadership position, our branded wine volume in the U.K. continues to grow and we are strengthening our relationships with major retailers as we navigate through this dynamic retail environment,” said Sands. “Robert Mondavi Woodbridge landed on the shelves of major U.K. retailers at the end of August, and while the rollout is still underway, early marketplace feedback has been positive and we are enthusiastic about the potential for this brand as we head into the key holiday selling season. Additionally, our growth in mainland Europe continues to be strong.”

Branded wine net sales in Australasia were down one percent, including a seven percent benefit from currency. Year over year sales comparisons were impacted by timing of shipments. Based on ACNielsen data for the second quarter of fiscal 2006, the company’s portfolio continues to grow in the Australian off-premise channel, while maintaining its leadership position in a competitive retail environment.  

Wholesale and other net sales decreased six percent for the quarter, including a two percent negative impact from currency. Slight growth in the U.K. wholesale business was more than offset by a reduction in net sales of cider, bottled water and the divested commodity concentrate business. 

Constellation wines operating income for the quarter totaled $123.7 million, a 41 percent increase over the second quarter of fiscal 2005. Segment operating margin for the quarter was 15.5 percent compared with 13.1 percent

 

Earlier this week, Constellation Wines U.S. initiated a program to consolidate certain west coast production processes through a combination of investment in new assets, reconfiguration of certain existing assets and a small reduction in personnel. This will result in greater asset utilization and increased efficiencies while reducing ongoing operating costs. This program is expected to be substantially complete by early fiscal 2007. 

Constellation Beers and Spirits Results 

Net sales for Constellation beers and spirits for the second quarter fiscal 2006 reached $391.7 million, a seven percent increase over the prior year period. Imported beers posted a nine percent increase in net sales for the quarter due to volume gains for the company’s Modelo, St. Pauli Girl and Tsingtao products.

Total spirits net sales for the second quarter increased two percent on flat branded spirits net sales and an increase in the company’s contract production services. Led by Black Velvet Canadian Whisky, the company’s branded spirits products grew approximately two percent, calendar year-to-date through Sept. 4, 2005, based on IRI food and drug channel data, compared with prior year results.  

“On August 1, we began importing and marketing Meukow Cognac, a premium product line in the U.S.,” said Sands. “Like Effen Vodka, Meukow is a small, yet growing brand that supports our strategy to invest in premium spirits

 

For the quarter, pro forma net sales, which include $103.8 million of sales from Robert Mondavi for the prior year second quarter, increased four percent. Pro forma branded wine net sales for the quarter increased eight percent, including a one percent benefit from currency. The robust second quarter performance for the Robert Mondavi portfolio reflects renewed focus on brand-building.

“During the second quarter of our fiscal 2006 the price of petroleum products moved into uncharted territory, tragic and senseless terrorist attacks rocked London and Hurricane Katrina ravaged the U.S. Gulf Coast. Our hearts go out to those impacted by these adversities. While these current events could have become distractions, Constellation’s 8,500 employees around the world remained focused on delivering results and additional true growth opportunities to increase shareholder value,” stated Sands. “We believe that in turbulent times the best course is always a steady one.”

 

With respect to the table, the reported basis and comparable basis estimates are subject to final purchase accounting adjustments related to the Robert Mondavi acquisition and the investment in Ruffino. The reported basis and comparable basis estimates exclude the impact of Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment,” which the company is required to adopt for interim periods beginning March 1, 2006. Reconciliations of reported information to comparable information are included in this media release.

	Reported Basis		Comparable Basis
	FY06 Estimate	FY05 Actual	FY06 Estimate	FY05 Actual
Third Quarter Ending Nov. 30	$0.40 - $0.43	$0.42	$0.48 - $0.51	$0.42
Fiscal Year Ending Feb. 28	$1.39 - $1.43	$1.19	$1.56 - $1.60	$1.35

 

·	Consolidated net sales growth in the mid-teens, including the benefit of 10 additional months of Robert Mondavi.

·	Interest expense in the range of $190-$195 million.

·

Tax rate of approximately 33 percent on a reported basis, which includes a benefit of three percent as a result of adjustments to income tax accruals in connection with the completion of various income tax examinations, and 36 percent on a comparable basis, which excludes the aforementioned three percent benefit.

 

·	Approximately 240 million weighted average diluted shares.

·	Cash provided by operating activities in the range of $380-$400 million.

·	Capital expenditures to approximate $140 million.

·	Debt of approximately $2.9 billion at Feb. 28, 2006.

All share and per share amounts in this press release, including within the financial information, reflect the effect of the company’s two-for-one stock splits of its Class A and Class B common stock that were distributed in the form of stock dividends on May 13, 2005 to stockholders of record on April 29, 2005.

A conference call to discuss second quarter fiscal 2006 results and outlook will be hosted by Chairman and Chief Executive Officer Richard Sands and Executive Vice President and Chief Financial Officer Tom Summer on Thursday, Oct. 6, 2005 at 5:00 p.m. (eastern). The conference call can be accessed by dialing +973-935-8505 beginning 10 minutes prior to the start of the call. A live listen-only web cast of the conference call, together with a copy of this press release (including the attachments) and other financial information that may be discussed in the call will be available on the Internet at Constellation’s Web site: www.cbrands.com under “Investors,” prior to the call.

Explanations 

Net income and diluted earnings per share on a comparable basis exclude acquisition-related integration costs, restructuring and related charges and unusual items. Pro forma net sales give effect to the Robert Mondavi acquisition as if the company had owned Robert Mondavi in the same period a year ago. The company discusses results on a comparable basis and pro forma basis in order to give investors better insight on underlying business trends from continuing operations. Management uses the comparable basis measures in evaluating results from continuing operations.

 

discussion of these items, please see the section “Items Affecting Comparability” following the financial information. The company’s measure of segment profitability excludes acquisition-related integration costs, restructuring and related charges and unusual items, which is consistent with the measure used by management to evaluate results.

Constellation Brands, Inc. is a leading international producer and marketer of beverage alcohol brands with a broad portfolio across the wine, spirits and imported beer categories. Well-known brands in Constellation’s portfolio include: Corona Extra, Corona Light, Pacifico, Modelo Especial, Negra Modelo, St. Pauli Girl, Tsingtao, Black Velvet, Fleischmann’s, Mr. Boston, Paul Masson Grande Amber Brandy, Chi-Chi’s, 99 Schnapps, Ridgemont Reserve 1792, Effen Vodka, Stowells, Blackthorn, Almaden, Arbor Mist, Vendange, Woodbridge by Robert Mondavi, Hardys, Nobilo, Alice White, Ruffino, Robert Mondavi Private Selection, Blackstone, Ravenswood, Estancia, Franciscan Oakville Estate, Simi and Robert Mondavi Winery brands. For additional information about Constellation Brands, as well as its product portfolio, visit the company’s Web site at www.cbrands.com.

The statements made under the heading Outlook (collectively, the “Outlook”), as well as all other statements set forth in this press release which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the forward-looking statements.

During the quarter, Constellation may reiterate the estimates set forth above under the heading Outlook. Prior to the start of the company’s quiet period, beginning Nov. 17, 2005, the public can continue to rely on the Outlook as still being Constellation’s current expectations on the matters covered, unless Constellation publishes a notice stating otherwise.

Beginning Nov. 17, 2005, Constellation will observe a “quiet period” during which the Outlook no longer constitutes the company’s current expectations. During the quiet period, the Outlook should be considered to be historical, speaking as of prior to the quiet period only, and not subject to update by the company.

 

The company’s forward-looking statements are based on management’s current expectations and, unless otherwise noted, do not take into account the impact of any future acquisition, merger or any other business combination, divestiture or financing that may be completed after the date of this release. Any projections of future results of operations, and in particular, (i) the company’s estimated diluted earnings per share on a reported basis for third quarter 2006 and fiscal 2006, and (ii) the company’s estimated diluted earnings per share on a comparable basis for third quarter 2006 and fiscal 2006, should not be construed in any manner as a guarantee that such results will in fact occur. In addition to the risks and uncertainties of ordinary business operations, the forward-looking statements of the company contained in this press release are also subject to the following risks and uncertainties: the successful integration of the Robert Mondavi business into that of the company; final management determinations and independent appraisals vary materially from current management estimates of (i) the fair value of assets acquired and liabilities assumed in the Robert Mondavi acquisition and (ii) the fair value of assets and liabilities of Ruffino; the company achieving certain sales projections and meeting certain cost targets; wholesalers and retailers may give higher priority to products of the company’s competitors; raw material supply, production or shipment difficulties could adversely affect the company’s ability to supply its customers; increased competitive activities in the form of pricing, advertising and promotions could adversely impact consumer demand for the company’s products and/or result in higher than expected selling, general and administrative expenses; a general decline in alcohol consumption; increases in excise and other taxes on beverage alcohol products; and changes in interest rates and foreign currency exchange rates. For additional information about risks and uncertainties that could adversely affect the company’s forward-looking statements, please refer to the company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended Feb. 28, 2005.