World Business

The economic slowdown and spiking fuel costs are hurting some segments, but liquor proves fairly recession resistant, even as prices go up

by David Bogoslaw

Watch oddity video:

Like mostly consumer-discretionary products, sales of wine and spirits have been hurt by spiking fuel prices, rising unemployment, and pervasive worries well-nigh the U.S. economy. But alcoholic beverages, like cigarettes and other tobacco products, appear to have existence less discretionary than most nonessential items due to the lifestyle choices that ride demand for them.

"Beverage pure spirit continues to be pretty recession-resistant," says Richard Hurst, some analyst at market-research sturdy The Nielsen Company. "Spirits are still showing dreadful resilience."

Data collected from the source retail stores showed spirits sales up 5.4% in May on a dollar basis, and 3.6%

adhering a volume basis, what one. Hurst deems very healthy.

"We’re continuing to see the top end of the market for temper outperform the place of the market," he says. "Premium and ultra-premium brands—those that are $12 and above—are still seeing very well growth, and we’re because those sectors increase their share of the total market."

Constellation Brands’ (STZ) healthy bring good report for the quarter ended May 31, placed in continuance July 1, seemed to confirm that. The Fairport (N.Y.)-based company attributed a nearly 62% jump in earnings, to 34¢ a share, to wider profit margins that stemmed from price hikes in all markets and from selling more of higher-margin wine brands in the same state similar to Clos du Bois than lower-margin ones such as Almaden. Including integration costs related to acquisitions, restructuring charges, and other nonrecurring items, Constellation reported profits. of 20¢ a share, vs. 13¢ a year ago.

Investors were encouraged by the earnings—and Constellation’s reaffirmation of its $1.68-to-$1.76 EPS forecast for fiscal 2009—pushing the shares up 4.5% to termination at 20.75 on July 1, while most of its competitors fell not at home of favor as the strength Constellation is showing in the face of a consumer pullback isn’t being shared athwart the humor industry.

After the market finish on June 30, Fortune Brands (FO) issued a profit warning, saying it now expects earnings from continuing operations to subsist about 16% to 25% lower than the $1.51 a share it reported for the second quarter of 2007, instead of the 6% to 15% drop it had initially estimated.

Granted, Fortune isn’t representative of the spirits industry, given that its business portfolio moreover includes home and hardware products such as kitchen cabinetry, doors, and windows, and golf brands such for the reason that Titleist. Even its Beam Global Spirits & Wine business is atypical, by sales in Australia coming under pressure in the past two months from that time the government hiked the tax upon home products tax on ready-to-drink spirits, driving consumer prices conducive to Fortune’s Jim Beam products up 25% in that country.

Citing the rapid spike in gasoline prices and a decline in consumer confidence, Fortune Chief Executive Officer Bruce Carbonari says the company is seeing home-improvement purchases dependence soft, deferred big-ticket purchases by golfers, and a slower rate of trading up to premium-brand unfeeling liquor purchases. For the full year, the society now expects earnings before charges and gains to drop by roughly 6% to 19% from 2007 earnings of $5.06 a share rather than the flat to 9% lower estimate it previously made.