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Slow wine sales hurt Constellation profits

ROCHESTER, N.Y. -- Constellation Brands Inc. said Thursday its third-quarter profit slumped 25 percent on weaker wine and beer sales in North America, price hikes that hurt sales of two popular wine brands and stepped-up promotional costs.

The results narrowly missed Wall Street estimates. Its shares fell 71 cents, or 3.5 percent, to close at $19.73 Thursday.

The world's No. 2 winemaker by volume said revenue dropped 27 percent to $700.7 million from $966.4 million largely because it sold the bulk of its Australian and British wine business a year ago.

Its wine and spirits sales in North America fell 4 percent, and beer sales dropped 12 percent. The drop in volume was driven largely by a year-over-year shift in inventory created by a distributor network consolidation it launched in September 2009.

In addition, price increases on its low-end Arbor Mist and Vendange wines hurt sales and cut into profits along with a spending bump to launch 20 new wines and other alcoholic beverages in 2012, the company said.

On a brighter note, Chief Executive Rob Sands pointed to a long-awaited industry uptick in wine sales in bars and restaurants in the quarter.

After a sharp drop in wine sales in 2009, volumes have rebounded over the last year as Americans take advantage of more discounts to trade up to higher-priced brands. The so-called "on-premise" category was especially hard-hit and the slowest to recover.

"We're seeing the on-premise channel up for the first time in a long time ... probably in the 1 to 2 percent range," Sands said in a conference call with analysts.

"For us, we probably gained (market) share on a dollar perspective and lost share on a volume percentage because we significantly changed the mix of products we're selling on-premise to more high-end, premium-plus products from the lower end."

Constellation reported net income of $104.8 million, or 52 cents per share, in the September-to-November quarter, down from $139.3 million, or 65 cents, a year earlier.

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