Tuesday, October 18, 2005

Bull vs. Bear on Constellation Brands (STZ)

In the bear corner is JP Morgan. Some JPM thoughts:

  • worried about Vincor acq. attempt, Vincor doesn't fill out any missing holes in STZ portfolio. Also STZ hasn't conducted due dilligence and Mondavi acq. is still being integrated
  • approx 30% of STZ business is in UK, UK Consumer weakening, fragmented manuf. base in UK creates comp. environment.
  • Australian wine glut pressuring prices in Australia and in UK
  • worried about strong US grape harvest on the back of Aussie glut
  • upside from beer will have less of an impact in H2
Our bull comes from DA Davidson:

  • on Vincor, STZ stated that acq isn't "must have" but that they were happy to take part in bidding
  • in the MRQ, on an apples-to-apples basis, wine sales up 10%. Monkey Bay, Twin Fin, Mondavi, Ruffino contribute.
  • Beer up 9% in MRQ compared to a flat to down beer market
  • Spirits sales only up 2%. Temp. slowdown, should be back up to 3-5% for full year.
  • GM% at 29.9%, up 190bp from last year
  • OM% at 16.5%, up 120bp from last year
  • paying down debt gets debt to 2.9B at year end
  • Strong pricing on wines going into holiday season -- fewer markdowns, reduced promotion

Here is the latest on STZ's attempt to acquire Vincor.

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