UK wine battle hits Constellation earnings
wine firm, Constellation Brands, to cut its earnings estimates for
the year.
Constellation dropped its predicted earnings per share from a high of $1.76 to $1.70 after profit margins suffered from its failure to pass higher UK duty tax on to retailers and consumers.
The announcement will add to wine industry fears of a collapse in value on the UK market, still one of the fastest growing in the world despite a slow-down over the last year.
Constellation, owner of wine brands Hardys and Stowells, said supermarkets and retailers had taken advantage of a competitive environment, particularly given the large quantities of cheap, bulk wine from Australia, following last year's bumper harvest there.
Australia's wine glut now appears to have solved itself via one of the country's worst droughts on record. Analysts believe the wine grape harvest may drop 15-20 per cent this year.
That may help restore some value in the UK market, which imports more Australian wines than anywhere else.
But Constellation warned the intense competition in the UK meant it still saw no opportunity to pass on significant cost increases in the near term.
"We are evaluating strategic options to address challenges in the UK market and strengthen our long-term position, while we maintain our focus on improving efficiency," said chairman Richard Sands.
There was better news for Constellation from imported beers and its recent takeover of Canadian wine group, Vincor. Both of these spurred the group to an 18 per cent sales rise for the third quarter ended 30 November.
Without Vincor, Constellation's branded wine sales would have dropped nine per cent in Europe, largely due to lower volumes in the UK.
