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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good afternoon ladies and gentlemen. At this time, I would like to welcome everyone to the Constellation Brands first quarter 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). It's now with great pleasure to turn the floor over to your host, Lisa Schnorr, Vice President of Investor Relations. You may begin your conference.
LISA SCHNORR, VP - IR, CONSTELLATION BRANDS INC.: Thank you. Good afternoon everyone and welcome to Constellation's first-quarter fiscal 2007 conference call. Richard Sands, our Chairman and Chief Executive Officer, and Tom Summer, our Executive Vice President and Chief Financial Officer are here with me this afternoon. By now, you should have had an opportunity to read our news release which has also been furnished to the SEC. This conference call is intended to complement the release.
During the call, we will discuss financial and statistical information on a GAAP basis, comparable basis, organic basis, and constant currency basis. Reconciliation between the most directly comparable GAAP measure and these and other non-GAAP financial measures are available on the Company's website at www.cbrands.com under the investor section. These reconciliations include explanations as to why management uses the non-GAAP financial measures and why management believes they are useful to investors.
Richard and Tom's discussions will generally focus on comparable financial results excluding acquisition related costs, restructuring and related charges, and unusual items. They will also discuss organic net sales information, which excludes the impact of acquisitions, and constant currency net sales information, which excludes the impact of year-over-year currency exchange rate fluctuations.
Please also be aware that we may make forward-looking statements during this call. While those statements represent our best estimates, actual results could differ materially from those estimates. For a detailed list of risk factors that may impact the Company's estimates, please refer to the media release and Constellation's SEC filings.
Now, before I turn the call over to Richard, I'd like to take a couple of minutes of your time to discuss some changes in the way we communicate our financial information. Many of you have told us that you find our news releases too long, too complicated, and generally speaking, shareholder unfriendly. You told us you would like to see even greater transparency. Well, we listened. And we decided to do a better job providing you with the information in a format that will make it easier for you to see the underlying fundamentals of our business.
Therefore, we conducted extensive research. We analyzed other companies' quarterly disclosures, and we spoke with many of you to better understand how you would like to see the information presented. The result is that we've instituted a number of significant content and format changes. Last quarter, we added a detailed analysis of our organic sales and an ROIC reconciliation to our website.
This quarter, we reformatted our news release to make better use of tables and present our results in a clearer, more concise way. And we also increased our transparency. Our news release now includes geographic net sales by product category.
As part of this process, we also looked at trends as they relate to both the nature and frequency of financial guidance. We've incorporated some changes focusing on the primary drivers and below the line items like interest, taxes, and CapEx.
We're also considering changing our current practice of providing quarterly EPS guidance and moving instead to providing EPS guidance only on an annual basis. We believe this would better reflect the way we manage and analyze our business for the long-term growth.
The changes we have made were implemented to improve the way we communicate with you, and we do welcome your comments. And with that being said, I would now like to turn the call over to Richard Sands.
RICHARD SANDS, CHAIRMAN AND CEO, CONSTELLATION BRANDS INC.: Thank you, Lisa. Good evening everyone. And thank you for joining us today. We're conducting our call from the New York Stock Exchange. Our Board of Directors joined us here today and we rang the closing bell. Tom and I have been on the road meeting with investors recently both in the U.S. and Europe, and there were a few themes that came up at most of our meetings. I'd like to take this opportunity to address some of those topics on today's call.
Let me first quickly touch on some of the first-quarter highlights for which Tom will provide greater detail later in the call. Constellation's fiscal 2007 is off to a good start. In our first quarter, we delivered strong topline growth in our branded businesses which increased 9% on a constant currency basis. This was driven by imported beers and branded wine.
Importantly, all of our categories performed as we expected. Branded wine net sales bounced back this quarter, increasing to 6% on a constant currency basis, driven by strong sales from North America that more than offset softness for Europe and Australia/New Zealand. Our beer business grew 18%, driven by continued strong consumer demand combined with strong shipments in advance of the key summer selling season.
And we experienced solid growth in our branded spirits business, driven by growth in our premium spirits brands although this was more than offset in the quarter by a year-over-year decline in production services due to the timing of a bulk whiskey sale in the first-quarter a year ago.
You will recall that I said back in April, sales trends can vary dramatically quarter to quarter for a variety of reasons. So I tend to look at longer-term growth rates to evaluate the underlying trends in our business. For the past four quarters, constant currency organic net sales of our branded businesses grew 6%, 9%, 3%, and 9% respectively. We delivered EPS in line with our expectations.
Our ability to manage through the cost challenges that we anticipated at the outset of the year demonstrates the strength of our portfolio as well as the strength of our decentralized organizational approach combined with our geographic diversity and scale. Our return on invested capital grew to 9.7%, up from 9.6% at the end of last year. Looking ahead, we would expect some near-term dilution in return on invested capital until we fully integrate Vincor and capture the full benefit of synergies of that acquisition.
Tom will take you through the results in detail, so I want to shift gears and spend the remainder of my time discussing three topics that seem to be on investors' minds. First, I'll talk about the Australian wine supply and its impact on Constellation's business and the market in general. Then I'll talk briefly about the UK wine market and what we're doing to maximize the value and profitability from …