Constellation Brands Reports Third Quarter Fiscal 2014 Results
* U.S. beer business acquisition drives significant increase in third quarter
sales and earnings
* Achieves comparable basis diluted EPS of $1.10 and reported basis diluted
EPS of $1.07
* Increases fiscal 2014 outlook; expects comparable basis diluted EPS of $3.10
- $3.20; expects reported basis diluted EPS of $9.65 - $9.75
* Improved outlook primarily driven by strong beer business performance
* Decreases debt by $166 million during the quarter
* Updates free cash flow projection; expects $525 - $575 million for fiscal
2014
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|Third Quarter 2014 Financial Highlights* |
|(in millions, except per share data) |
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|Â |
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|     Comparable     % Change     Reported     % Change|
| |
|Net sales $1,443 88% $1,443 88%|
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|Â Â Â Â Â |
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|Operating income $375 117% $364 129%|
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|Â Â Â Â Â |
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|Operating margin 26.0% +350 bps 25.2% +450 bps|
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|Â Â Â Â Â |
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|Equity in earnings of $18 -66% $18 -66%|
|equity method |
|investees**Â Â Â Â |
| |
|Â Â Â Â Â |
| |
|Earnings before interest $393 74% NA NA|
|and taxes (EBIT) |
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|Â Â Â Â Â |
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|Net income $217 83% $211 93%|
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|Â Â Â Â Â |
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|Diluted earnings per $1.10 75% $1.07 84%|
|share |
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|Â Â Â Â Â |
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(*Definitions of reported and comparable, as well as reconciliations of non-GAAP
financial measures, are contained elsewhere in this news release.)
(**Hereafter referred to as "equity earnings.")
NA=Not applicable
VICTOR, N.Y., JAN. 8, 2014 - Constellation Brands, Inc. (NYSE: STZ and STZ.B), a
leading beverage alcohol company, reported today its third quarter 2014 results.
"I am very pleased with the overall performance of our newly consolidated beer
business, which is the highlight of the third quarter and the primary driver of
the upward revision to our EPS guidance for fiscal 2014," said Rob Sands,
president and chief executive officer, Constellation Brands. "The strong
marketplace momentum we experienced this summer for our beer portfolio,
especially Corona and Modelo Especial, continued throughout the fall and into
the holiday selling season. Â New marketing campaigns along with superior sales
and distributor execution at retail helped drive these outstanding results. From
an operational perspective, the Nava brewery in Mexico is executing successfully
in all key performance areas and expansion activities continue to proceed."
 Net Sales Commentary
The significant increase for third quarter consolidated net sales was driven by
$662 million of incremental net sales related to the consolidation of Crown.
 For the quarter, net sales for the beer segment increased 21 percent primarily
due to volume growth driven by strong consumer demand, the return of distributor
inventories to more normal levels and a favorable comparison versus last year's
third quarter.
"Crown experienced exceptional results for the third quarter posting double-
digit sales and depletion growth. All core beer brands demonstrated year-over-
year volume increases, with the overall portfolio continuing to significantly
outperform the growth of the U.S. beer market," said Sands. "From an innovation
perspective, the draft format is growing in all key markets and the new Modelo
Especial Chelada rollout is exceeding expectations in the states where it has
already been introduced. Due to strong year-to-date performance, we now expect
Crown's underlying profit growth to be in the low to mid-teens range for the
year."
Wine and spirits net sales on an organic constant currency basis increased three
percent as wine volume growth was partially offset by higher promotional spend
and lower bulk spirits sales. "As expected, throughout the quarter we began to
see the acceleration of our U.S. wine depletion trends during the key holiday
selling season," Sands added. "Year-to-date, we are outperforming the U.S. wine
market across all channels on a volume basis driven by investments behind our
portfolio and strong performance of some of our most popular Focus Brands
including Rex Goliath, Mark West, Kim Crawford, Estancia, Ruffino, Black Box and
Woodbridge by Robert Mondavi. However, this year's financial performance has
been tracking below our expectations and we now expect operating profit for the
wine and spirits business to be flat to down slightly for the year."
Operating Income and Net Income Commentary
The increase in consolidated comparable basis operating income includes an
incremental benefit of $213 million of operating income from the consolidation
of results for Crown and the Mexican brewery as a result of the beer business
acquisition. The decrease in wine and spirits operating income primarily
reflects higher promotion, product and marketing costs, partially offset by
volume growth.
Due to the timing of the close of the beer acquisition, the company did not
recognize equity earnings from its original 50 percent interest in the Crown
joint venture during the third quarter. For the prior year third quarter, the
company recorded $39 million of equity earnings for the Crown joint venture.
Equity earnings for the wine and spirits segment in the third quarter increased
$4 million driven by strong results for Opus One.
Interest expense totaled $90 million, an increase of 46 percent. The increase
was primarily due to higher average borrowings driven by the financing for the
beer business acquisition, partially offset by lower average interest rates.
The comparable basis effective tax rate for the third quarter was 28 percent
which reflected the benefits from integrating the beer business as well as
higher than anticipated foreign tax credits. This compares to a 28 percent tax
rate for the prior year third quarter which also included the benefit of foreign
tax credits. The company now expects the comparable basis effective tax rate to
approximate 31 percent for fiscal year 2014.
Free Cash Flow Commentary
Free cash flow for the first nine months of fiscal 2014 totaled $543 million as
compared to $337 million for the same period last year. The increase was
primarily due to incremental benefits from the beer business acquisition,
partially offset by higher interest payments.
"We are pleased with our strong free cash flow results through the third
quarter, but we expect brewery capital expansion investments to significantly
increase in the fourth quarter of this fiscal year," said Bob Ryder, chief
financial officer, Constellation Brands. Â "We have updated our free cash flow
projection to reflect better than anticipated beer business results and now
expect to generate free cash flow in the range of $525 million to $575 million
for fiscal 2014."
Beer Business Acquisition
The company completed its acquisition of Grupo Modelo's U.S. beer business from
Anheuser-Busch InBev for approximately $4.75 billion on June 7, 2013. The
transaction includes full ownership of Crown which provides Constellation with
complete, independent control of the U.S. commercial business; a state-of-the-
art brewery in Nava (Piedras Negras), Mexico; and an exclusive perpetual brand
license in the U.S. to import, market and sell Corona and the other Modelo
brands Crown currently sells in the U.S. market. The perpetual brand license
also includes certain brands and brand extensions not currently marketed in the
U.S. by Crown and the freedom to develop new brand extensions and innovations.
Outlook
The table below sets forth management's current diluted EPS expectations for
fiscal 2014 compared to fiscal 2013 actual results, both on a reported basis and
a comparable basis.
+------------------+---------------------------+---------------------------+
| Â | Reported Basis | Comparable Basis |
| +-----------------+---------+-----------------+---------+
| | FY14 | FY13 | FY14 | FY13 |
| | Estimate | Actual | Estimate | Actual |
+------------------+-----------------+---------+-----------------+---------+
|Fiscal Year Ending| | | | |
|Feb. 28 |Â Â $9.65 - $9.75|Â Â $2.04|Â Â $3.10 - $3.20|Â Â $2.19|
+------------------+-----------------+---------+-----------------+---------+
Full-year fiscal 2014 guidance also includes the following current assumptions:
* Interest expense: approximately $325 million
* Tax rate: approximately 11 percent on a reported basis and 31 percent on a
comparable basis, primarily due to the non-taxable gain on the remeasurement
to fair value of the company's original 50 percent interest in Crown and the
non-deductible goodwill impairment charge
* Weighted average diluted shares outstanding: approximately 198 million
* Free cash flow: approximately $525 - $575 million
* Capital expenditures: approximately $200 - $230 million
Conference Call
A conference call to discuss third quarter 2014 results and outlook will be
hosted by President and Chief Executive Officer Rob Sands and Executive Vice
President and Chief Financial Officer Bob Ryder on Wed., Jan. 8, 2014 at 10:30
a.m. (eastern). Â The conference call can be accessed by dialing +973-935-8505
beginning 10 minutes prior to the start of the call. Â A live listen-only webcast
of the conference call, together with a copy of this news release (including the
attachments) and other financial information that may be discussed during the
call will be available on the Internet at the company's website: www.cbrands.com
under "Investors," prior to the call.
Explanations
Reported basis ("reported") operating income, net income and diluted EPS are as
reported under generally accepted accounting principles. Â Operating income, net
income and diluted EPS on a comparable basis ("comparable"), exclude
restructuring charges and unusual items. Â The company's measure of segment
profitability excludes restructuring charges and unusual items, which is
consistent with the measure used by management to evaluate results.
The company discusses additional non-GAAP measures in this news release,
including constant currency net sales, organic net sales, comparable basis EBIT,
comparable basis effective tax rate and free cash flow.
Supplemental Financial Information
Tables reconciling non-GAAP measures, together with definitions of these
measures and the reasons management uses these measures, are attached to and are
part of this news release. Please see the link below.
About Constellation Brands
Constellation Brands (NYSE: STZ and STZ.B) is an S&P 500 Index and Fortune
1000® wine, beer and spirits company with more than 100 brands in its portfolio,
sales in approximately 100 countries, operations in about 40 facilities and
approximately 6,000 talented employees. Founded in 1945, Constellation has grown
to become the world's leader in premium wine and the number three beer company
in the U.S. with brands that people love, including: Arbor Mist, Black Box,
Blackstone, Clos du Bois, Estancia, Franciscan Estate, Inniskillin, Kim
Crawford, Mark West, Mount Veeder, Nobilo, Ravenswood, Rex Goliath, Robert
Mondavi, Ruffino, SIMI, Toasted Head, Wild Horse, Corona Extra, Corona Light,
Modelo Especial, Negra Modelo, Pacifico, Tsingtao, Victoria, Black Velvet
Canadian Whisky and SVEDKA Vodka.
Based in Victor, N.Y., the company believes that industry leadership involves a
commitment to its brands, to the trade, to the land, to investors and to people
around the world who turn to our products when celebrating big moments or
enjoying quiet ones. We express this commitment through our vision: to elevate
life with every glass raised. To learn more, visit www.cbrands.com.
Forward-Looking Statements
The statements made under the heading Outlook, and all statements other than
statements of historical fact set forth in this news release regarding
Constellation Brands' business strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives of
management, as well as information concerning expected actions of third parties,
are forward-looking statements (collectively, the "Projections") that involve
risks and uncertainties that could cause actual results to differ materially
from those set forth in or implied by the Projections.
During the current quarter, Constellation Brands may reiterate the Projections.
 Prior to the start of the company's quiet period, which will begin at the close
of business Feb. 28, 2014, the public can continue to rely on the Projections as
still being Constellation Brands' current expectations on the matters covered,
unless the company publishes a notice stating otherwise. During Constellation
Brands' "quiet period," the Projections should not be considered to constitute
the company's expectations and should be considered historical, speaking as of
prior to the quiet period only and not subject to update by the company.
The Projections are based on management's current expectations and, unless
otherwise noted, do not take into account the impact of any future acquisition,
merger or any other business combination, divestiture, restructuring or other
strategic business realignments, financing or share repurchase that may be
completed after the date of this release. The Projections should not be
construed in any manner as a guarantee that such results will in fact occur.
In addition to the risks and uncertainties of ordinary business operations, the
Projections of the company contained in this news release are subject to a
number of risks and uncertainties, including:
* brewery expansion activities take place on expected terms and timetable and
receipt of any necessary regulatory approvals;
* accuracy of supply projections, including those relating to brewery
expansion;
* timeframe and actual costs associated with the brewery expansion may vary
from management's current expectations due to market conditions, the
company's cash and debt position, and other factors as determined by
management;
* the impact of and the ability to realize the anticipated benefits of
acquisitions, including as a result of difficulty in integrating the
businesses of the companies involved;
* final management determinations and independent appraisals, including those
relating to purchase price allocation, may vary materially from current
management estimates of the fair value of assets acquired and liabilities
assumed in the beer business acquisition;
* timing of cash payment for beer business acquisition purchase price
adjustment and actual amount of certain working capital adjustments relating
to the beer business acquisition may vary from management's current
expectations;
* the exact duration of the share repurchase implementation and the amount and
timing of any additional share repurchases;
* achievement of all expected cost savings from the company's various
restructuring plans and realization of expected asset sale proceeds from the
sale of inventory and other assets;
* restructuring charges and other one-time costs associated with restructuring
plans may vary materially from management's current estimates due to
variations in one or more of anticipated headcount reductions, contract
terminations, costs or timing of plan implementation;
* raw material and water supply, production or shipment difficulties could
adversely affect the company's ability to supply its customers;
* increased competitive activities in the form of pricing, advertising and
promotions could adversely impact consumer demand for the company's products
and/or result in lower than expected sales or higher than expected expenses;
* general economic, geo-political and regulatory conditions, prolonged
downturn in the economic markets in the U.S. and in the company's major
markets outside of the U.S., continuing instability in world financial
markets, or unanticipated environmental liabilities and costs;
* changes to accounting rules and tax laws, and other factors which could
impact the company's reported financial position, results of operations or
effective tax rate;
* changes in interest rates and the inherent unpredictability of currency
fluctuations, commodity prices and raw material costs;
* accuracy of the bases for forecasts relating to joint ventures and
associated costs, losses, purchase obligations and capital investment
requirements; and
* other factors and uncertainties disclosed in the company's filings with the
Securities and Exchange Commission, including its Annual Report on Form 10-K
for the fiscal year ended Feb. 28, 2013, which could cause actual future
performance to differ from current expectations.
CONTACTS
Media
Angela Howland Blackwell: 585-678-7141
Cheryl Gossin: 585-678-7191
Investor Relations
Patty Yahn-Urlaub: 585-678-7483
Bob Czudak: 585-678-7170
Q3 FY '14 Financial Tables:
http://hugin.info/143788/R/1752990/591383.pdf
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Source: Constellation Brands Inc via GlobeNewswire
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