Mondavi Swings to a Profit in Quarter
Winemaker Robert Mondavi Corp. swung to a profit in the latest quarter but warned that intense competition for mid-priced wine continued to hurt profit margins.
The Napa, Calif.-based company said Thursday that it earned $2 million, or 12 cents a share, in its fiscal third quarter ended March 31. That compared with a loss of $1.8 million, or 11 cents, in the same period a year earlier. Last year’s loss included $4.8 million, or 18 cents a share, in restructuring charges.
Sales grew 6% to $98.1 million in the third quarter.
“Overall their earnings were solid,” said Jonathan Feeney, an analyst with Wachovia Securities in New York.
Mondavi’s shares rose 13 cents to $38.68 on Nasdaq.
Mondavi’s wine shipments rose 9% to nearly 2.2 million cases in the latest quarter.
California’s largest public winery, Mondavi is often viewed as a bellwether for the state’s $14-billion wine trade, selling everything from $5 table wine to $125 Cabernet Sauvignons.
Even though much of the wine industry is starting to recover from a statewide grape surplus, a slow economy and intense competition from imports, Mondavi executives were reluctant to trumpet their good fortune during a conference call with Wall Street analysts and investors Thursday.
In fact, Chief Executive Gregory Evans conceded that a worldwide surplus of wine grapes had turned his outlook more pessimistic in recent months for the mid-priced segment, where Mondavi’s Woodbridge line of 1.5-liter varietal wines is a major player.
“Brands a year ago that were about $1 less than us are now down $2,” he said.
And grape prices for the current Australian harvest are lower than last year, adding to the flood of inexpensive wine coming from Down Under despite changes in currency rates that should favor American producers, Evans said.
The Woodbridge wines, which account for about half of Mondavi’s sales, generally sell for about $9.99 to $10.99 in California, and about $1 a bottle more in other states. Its competitors range from San Francisco-based Wine Group’s Corbett Canyon and Glen Ellen brands at $6.99 to $8.99 to Australia’s Lindemans at about $9 a bottle.
Evans said he expected the downward pressure on prices for these so-called table wines to continue for 12 to 24 months, even though the overall economy appears to be improving.
“We have to do more brand building with Woodbridge as opposed to using discounts to push products,” Evans said.
For now, Woodbridge’s volume and price are declining. The winery said it shipped 1.5 million cases of Woodbridge in the last quarter, a 1% decline from a year ago. At the same time, revenue from the brand dipped 3% to $48.5 million.
What’s happening, wine executive Peter Byck said, is that consumers walk down the aisle at the supermarket with an idea of what type of wine they want to buy, but make the final decision based on what’s on special.
“Certainly Woodbridge and other brands have equity,” said Byck, chief executive of the WineryExchange, which develops private wine brands for retailers. “But I do think the wine market is especially price sensitive.”
At the higher end of the market, sales are improving as travel and entertainment pick up with the strengthening economy, Evans said. Wines priced at $25 are doing particularly well.
Shipments of the flagship Robert Mondavi premium wines grew 31% to 69,000 cases. Revenue from those wines rose 9% to $11 million.
