Leading wine distributor Constellation Brands Inc.’s (STZ) net income decreased to $109.1 million in the second quarter of fiscal 2011 from $120.0 million in the prior-year quarter. The quarterly earnings of 52 cents a share, surpassed the Zacks Consensus Estimate of 49 cents, but failed to beat the year-ago quarter’s earnings of 54 cents.
 
Including special items, earnings for the quarter came in at 43 cents a share compared with 45 cents earned in the prior-year quarter. Constellation Brands reaffirmed its earnings guidance for fiscal 2011 in the range of $1.63 to $1.78 per share. The guidance remains almost in line with the Zacks Consensus Estimate of $1.72 per share.

Meanwhile, quarterly net sales declined marginally by 2.0% to $862.8 million from $876.8 million in the year-ago quarter, primarily due to divestment of the value and cider spirits business in the U.K. However, net sales for the quarter under review came well ahead of the Zacks Consensus  Estimate for revenue of $844 million.
 
In terms of geographic regions, North American net sales grew 3% year over year to $655.6 million from $634.9, while Australia and Europe fell 14% to $207.2 million from $241.9 million.

Constellation Brands’ operating income slipped 11.0% to $150.5 million, from $169.0 million in the year-ago quarter. The decline was primarily due to higher corporate expenses, coupled with lower Australia and Europe wine segment operating income. 

Constellation Brands ended the quarter with cash and cash equivalents of $13.9 million, compared with $19.7 million in the year-ago quarter. During the reported quarter, Constellation generated $305.7 million of cash from operations. The company also deployed $43.2 million toward capital expenditure.  Free cash flow for the quarter came in at $262.5 million.

Looking ahead, Constellation Brands expects to generate $485 million to $555 million of cash from operations in fiscal 2011 and deploy $110 million to $130 million toward capital expenditure. Accordingly, the company anticipates free cash flow in the  range of $375 million to $425 million.
 
Constellation Brands shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation. Our long-term recommendation for the stock remains ‘Neutral’.

 
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