Constellation Brands lowers debt by $112 million in first quarter

By Jennifer Lanning Drey

Portland, Ore., July 1 - Constellation Brands Inc. reduced debt by $112 million in the first quarter of fiscal 2010 using proceeds from the sale of its value spirits business, and the company expects to continue to lower debt throughout the year, Bob Ryder, chief financial officer of Constellation, said Wednesday during the company's quarterly earnings conference call.

Debt-to-comparable-basis EBITDA remained at 4.3 times, consistent with the fiscal 2009 year-end level, as the benefit of the debt reduction was essentially offset by lower EBITDA due to softer performance reported in the last two quarters, Ryder said.

Constellation is targeting free cash flow for full-year fiscal 2010 in the range of $230 million to $270 million, which will be used to continue to reduce borrowings, he said.

The company believes it is on track to achieve a debt-to-comparable-basis EBITDA ratio in the high 3.0 times range by the end of fiscal 2010, Ryder said.

Constellation had $4.3 billion of debt at May 31.

During the first quarter, Constellation used free cash flow of $102 million versus a use of free cash flow in the prior-year period of about $55 million. Ryder said the company typically shows a seasonal use of free cash flow for the first quarter, but the increased usage in fiscal 2010 was related to higher capital expenditure spending due to timing.

Net sales down 15%

Constellation's net sales decreased 15% in the first quarter, primarily as a result of year-over-year exchange rate fluctuations and the divestitures of the value spirits business, spirits contract production services and certain Pacific Northwest wine brands.

Organic net sales increased 1% on a constant currency basis.

"We've been impacted by the global slowdown but are taking the necessary actions to fortify the company short term," Rob Sands, chief executive officer of Constellation, said during the call.

The company is now reaping benefits related to previously implemented cost-reduction initiatives taken to mitigate the negative impacts of the turbulent global economy and create efficiencies to drive long-term growth, Sands said.

At the same time, however, the company's planned product-reduction activities tempered topline growth, he said.

"We are generally pleased with our quarterly results, which were in line with our expectations and demonstrate that we are on track to achieve our goals for fiscal 2010," Sands said.

Constellation Brands is a Fairport, N.Y.-based producer and marketer of beverage alcohol brands in wine, spirits and imported beer categories.

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