INTERVIEW-Constellation CEO-Consumers not in holiday spirit

NEW YORK(Reuters) - U.S. wine and spirits maker Constellation Brands Inc does not think drinkers will be bellying up to the bar in full force this holiday season, despite some signs of economic recovery.

"I would not be over-optimistic about the consumer this holiday season," said Rob Sands, chief executive of the maker of Robert Mondavi wine, Svedka vodka and Black Velvet Canadian Whisky.

"I don't think it's going to be awful, awful, awful -- but I don't think it will be great," Sands said in an interview ahead of the company's investor meeting Wednesday.

Sands said Constellation, which also has a joint venture with Mexico's Grupo Modelo to import beers like Corona, will likely not see sales at bars, restaurants and convenience stores turn around until employment improves.

"When we've seen unemployment peak and start turning around, you'll start seeing the on-premise and convenience sector start coming back," Sands said, noting that people often buy beer at gas stations after work. By contrast, the grocery store business has been less hurt by the economy, he said.

NO UPDATE ON MERGER

Constellation, the world's biggest maker of branded wine, said earlier this month it was in talks to sell or merge part of its Australian and U.K. wine operations.

At the time, the company said the talks included a potential combination of part of the Australian and British wine operations with Australian Vintage Ltd.

Sands did not offer any new details on the discussions, saying they were ongoing. But he did say his plan was to improve margins and reduce investment in those regions, since a recovery is unlikely to come immediately.

"Finding a way to create synergies, improve margins and reduce investment is a prudent course of action, so that's what this is all about," Sands said.

As Constellation aims to sell assets, it is not looking for new ones, though Sands did not rule out acquisitions entirely.

"It's not outside the realm of possibility, but it would be somewhat inconsistent right now with the other things we're trying to accomplish," Sands said, noting that he was more focused on improving organic sales growth, return on capital and free cash flow.

Constellation, which recently sold off some less-expensive brands, has closed facilities, cut jobs and consolidated distribution. It has also cut more than $1 billion in debt since March 2008.

Jay Wright, the company's chief commercial officer, said it should complete the consolidation of its U.S. wine and spirits distributor network by the spring of 2010, giving it exclusive relationships with distributors in 30 states.

"By consolidating, we were able to ... achieve a whole bunch of benefits to our business to help us with profitable organic sales growth," Wright said.

Constellation expects to earn $1.60 per share to $1.70 per share this fiscal year, which ends in February.

For Constellation's beer business, which has been hit hard because it consists of higher-priced imports, the company expects sales to fall at a mid-single-digit rate this year, with profit down at a similar pace.

Constellation's contract with Modelo will last for another seven years, but the venture's future has been called into question since U.S. brewer Anheuser-Busch, which owns about half of Modelo, was acquired.

Sands predicted the contract will get renewed, since the only other option would be for Modelo and its owners to buy out Constellation's stake. But he expects that move would be nixed for antitrust reasons, given the market's existing dominance by MillerCoors -- the venture of SABMiller Plc and Molson Coors Brewing Co -- and Anheuser-Busch InBev NV .

"With the U.S. beer business being dominated by two players which control almost 80 or 90 percent of the business, I think there's a lot of speculation that it's unlikely that any further concentration will be allowed ... especially under the current administration," Sands said.