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Richard Sands, Constellation Chairman, Chief Executive Officer and President, said, "We are very satisfied with Constellation's second quarter and half-year results. We were able to achieve these results and remain on track to meet our earnings per share target for the full year due to our broad portfolio of leading brands, our unique operating strategy that keeps us in close touch with our markets and an industry that's able to maintain equilibrium despite economic uncertainty."
Consolidated Results
Net sales were $690 million for the three months ended August 31, 2002 ("Second Quarter 2003"), up slightly over the three months ended August 31, 2001 ("Second Quarter 2002"). On a currency-adjusted basis, net sales declined two percent as increased sales in fine wine and U.K. wholesale were more than offset by lower sales in popular and premium wine and U.K. brands. Net sales for the six months ended August 31, 2002 ("Six Months 2003"), increased four percent as compared to the six months ended August 31, 2001 ("Six Months 2002"). Excluding the impact of currency and the four-month benefit from Ravenswood, which was acquired early July 2001, net sales increased two percent for Six Months 2003.
Gross profit for the quarter increased five percent compared to a year ago as gross profit margin improved 140 basis points. The increase in gross profit margin to 28.0 percent resulted primarily from: a favorable mix of sales towards higher margin brands, particularly fine wines and tequila; lower average spirits costs; and higher average imported beer prices partially offset by higher average imported beer costs. For Six Months 2003, gross profit reached $370 million, an increase of nine percent, and gross profit margin improved 130 basis points compared to the prior year period.
Selling, general and administrative expenses were $88 million for Second Quarter 2003, unchanged from the prior year. As a percent of net sales, selling, general and administrative expenses were 12.7 percent, also unchanged from the prior year period. Selling, general and administrative expenses as a percent of net sales for Six Months 2003 were 13.3 percent, an increase of 30 basis points from the prior year.
Operating income increased $10 million for Second Quarter 2003 reaching $106 million, an increase of 11 percent over the prior year period. Operating margins improved 140 basis points over the prior year period. For Six Months 2003, operating income increased 12 percent and operating margin improved 100 basis points.
Equity income from Pacific Wine Partners, an equally owned joint venture with BRL Hardy which commenced operations August 1, 2001, was $3 million for Second Quarter 2003 versus a slight loss for Second Quarter 2002. Shipments of Australian import Banrock Station and Blackstone from California increased 58% and 80%, respectively, for Second Quarter 2003 compared to the three months ended August 31, 2001.
Net interest expense for Second Quarter 2003 declined $2 million to $27 million as a result of lower average borrowing rates and lower average debt levels.
Net income reached $50 million for Second Quarter 2003, a 22 percent increase compared to net income of $41 million for Second Quarter 2002. Diluted earnings per share for Second Quarter 2003 were $0.53, a 15 percent increase over diluted earnings per share of $0.46 for Second Quarter 2002. Net income and diluted earnings per share for Six Months 2003 were $87 million and $0.94, respectively, representing a 27 percent and 18 percent increase versus Six Months 2002.
Imported Beer and Spirits Results
Imported beer and spirits net sales for Second Quarter 2003 were $286 million, down one percent compared to Second Quarter 2002. Imported beer sales were unchanged as price increases on the Mexican beer portfolio implemented in First Quarter 2003 were offset by volume declines. Imported beer shipments declined in the quarter as expected due to inventory adjustments in the distribution channel related to the price increase. Imported beer depletions (sales to retailers) increased five percent for Second Quarter 2003 and consumer takeaway data as measured by AC Nielsen is tracking in the high single digits. Spirits sales declined three percent on lower volume following a five percent gain in First Quarter 2003. For Six Months 2003, spirits sales increased one percent.
Operating income increased 15 percent versus the comparable quarter last year. The growth in operating income was primarily the result of favorable beer pricing, a favorable mix of spirits products and lower average spirits costs partially offset by increased imported beer costs.
For Six Months 2003, imported beer and spirits' net sales and operating income increased five percent and 16 percent, respectively.
Popular and Premium Wine Results
Net sales were $184 million for popular and premium wine for Second Quarter 2003, a decline of $15 million versus Second Quarter 2002. One third of the decline was due to lower non-branded sales, particularly bulk wine sales and concentrate sales. Branded sales declined six percent in the quarter on lower volume. Volumes were impacted primarily by the timing of shipments between quarters and greater competitive price discounts and promotions, which the Company has not participated in heavily. The Company's average price per case is actually higher versus the prior year due to a sales mix to higher priced products, which is reflected in improved margins.
Operating income was flat for Second Quarter 2003 compared to Second Quarter 2002 as a 100 basis point improvement in operating margins offset lower net sales. The margin improvement resulted from higher average selling prices and lower advertising expenses.
Net sales for Six Months 2003 were $348 million compared to $366 million for Six Months 2002. Operating income remained virtually unchanged over the six-month period due to a 50 basis point improvement in operating margin.
U.K. Brands and Wholesale Results
Net sales for Second Quarter 2003 were $190 million versus $179 million reported for the comparable quarter a year ago, an increase of six percent. Excluding the impact of foreign currency, net sales declined one percent. On a currency-adjusted basis, the U.K. wholesale business grew three percent and branded sales declined 10 percent. Growth in the wholesale business was impacted by a 28 percent increase for the same period a year ago and weak summer trading conditions. Declining cider sales continue to impact U.K. branded sales. Excluding cider and the impact of currency, U.K. brands' net sales were down two percent compared to an increase of 28 percent in the prior year period and 13 percent in First Quarter 2003.
Operating income for Second Quarter 2003 was $15 million, unchanged from the prior year.
Excluding the impact of currency, net sales for Six Months 2003 increased 4 percent. Operating income for Six Months 2003 was $25 million, similar to the prior year period.
Fine Wine Results
Fine wine net sales for Second Quarter 2003 were $35 million versus $29 million reported for the comparable quarter last year, an increase of 19 percent. Excluding the one-month benefit from Ravenswood, net sales grew 12 percent for the quarter. Organic growth was driven by volume increases from the Ravenswood, Estancia, Simi and Franciscan brands, partially offset by lower average selling prices. The increase in operating income resulted primarily from increased net sales growth. Net sales and operating income for Six Months 2003 were $70 million and $24 million, respectively; increases of 29 percent and 37 percent compared to Six Months 2002.
Outlook
The following statements are management's current expectations for the Company's three months ending November 30, 2002 ("Third Quarter 2003"), and fiscal year ending February 28, 2003 ("Fiscal 2003"). These statements are made as of the date of this press release and are forward-looking. Actual results may differ materially from these expectations due to a number of risks and uncertainties.
* Diluted earnings per share for Third Quarter 2003 are expected to be within a range of $0.67 to $0.70 versus diluted earnings per share on a comparable basis of $0.60 for Third Quarter 2002. * Diluted earnings per share for Fiscal 2003 are expected to be within a range of $2.00 to $2.04 versus diluted earnings per share before an extraordinary item on a comparable basis of $1.79 for Fiscal 2002.All share and per share amounts in this press release, including within the financial information, reflects the two-for-one stock split of both the Company's Class A and Class B common stock, which was distributed in the form of a stock dividend on May 13, 2002.
Status of Business Outlook
During the quarter, Constellation may reiterate the estimates set forth above under the heading Outlook (collectively, the "Outlook"). Prior to the start of the Quiet Period (described below), the public can continue to rely on the Outlook as still being Constellation's current expectations on the matters covered, unless Constellation publishes a notice stating otherwise.
Beginning November 16, 2002, Constellation will observe a "Quiet Period" during which the Outlook no longer constitutes the Company's current expectations. During the Quiet Period, the Outlook should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the Company. During the Quiet Period, Constellation's representatives will not comment concerning the Outlook or Constellation's financial results or expectations. The Quiet Period will extend until the day when Constellation's next quarterly Earnings Release is published, presently scheduled for Thursday, January 2, 2003.
Adoption of SFAS 142 and EITF No. 01-09
The financial information in this press release reflects the adoption of Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." In order to help investors better evaluate year over year performance, the Company has included financial information on a "comparable" basis, as if the adoption of SFAS 142 had occurred in the prior year. Unless otherwise noted, discussions in this release were prepared on a comparable basis.
Also, beginning March 1, 2002, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of a Vendor's Products." As a result, the Company has reclassified certain promotional expenditures paid to distributors, retailers or consumers as a reduction of revenue and non-cash consideration as an increase to cost of product sold. The Company previously reported these expenses as selling, general and administrative expenses. Prior-period financial information has been reclassified to comply with this guidance. This reclassification does not affect operating income or net income. Additional historical financial information, adjusted to show the effect of EITF 01-09, can be found on the Company's web site: http://www.cbrands.com.
Forward-Looking Statements
The statements made under the heading Outlook, as well as all other statements set forth in this press release which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. The Company's forward-looking statements 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 or financing that may be completed after the date of this release. Any projections of future results of operations, and in particular, (i) the Company's estimated diluted earnings per share for Third Quarter 2003, and (ii) the Company's estimated diluted earnings per share for Fiscal 2003, 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 forward-looking statements of the Company contained in this press release are also subject to the following risks and uncertainties: the Company achieving certain sales projections and meeting certain cost targets; wholesalers and retailers may give higher priority to products of our competitors; raw material supply, production or shipment difficulties could adversely affect our ability to supply our customers; increased competitive activities in the form of pricing, advertising and promotions could adversely impact consumer demand for our products and/or result in higher than expected selling, general and administrative expenses; a general decline in alcohol consumption; increases in federal and state excise taxes on beverage alcohol products; changes in foreign exchange rates. For additional information about risks and uncertainties that could adversely affect the Company's forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended February 28, 2002.
About Constellation
Constellation Brands, Inc. is a leading producer and marketer of beverage alcohol brands, with a broad portfolio of wines, spirits and imported beers. The Company is the largest single-source supplier of these products in the United States, and both a major producer and independent drinks wholesaler in the United Kingdom. Well-known brands in Constellation's portfolio include: Corona Extra, Pacifico, Modelo Especial, St. Pauli Girl, Black Velvet, Fleischmann's, Schenley, Ten High, Franciscan Oakville Estate, Simi, Estancia, Ravenswood, Alice White, Talus, Vendange, Almaden, Arbor Mist, Stowells of Chelsea and Blackthorn.
CONFERENCE CALL DETAILSA conference call to discuss the quarterly results will be hosted by Richard Sands, Chairman and CEO, and Tom Summer, Executive Vice President and CFO, on Thursday, September 26, 2002, at 11:00 a.m. (Eastern). The conference call can be accessed by dialing 412-858-4600. A live listen-only web cast of the conference call is available on the Internet at Constellation's web site: http://www.cbrands.com under "Investor Information." If you are unable to participate in the conference call, there will be a replay available on Constellation's web site or by dialing (412) 858-1440 from approximately 1:30 p.m. (Eastern) on Thursday, September 26, 2002, through 12:00 a.m. (Eastern) on Friday, October 4, 2002.
Digital Playback Instructions - Courtesy of ChorusCall 1. Dial 412-858-1440. 2. Enter '274' when prompted for your account number followed by the # sign. 3. Please press '1' to play a recorded conference. 4. Please enter '295184' when prompted to enter the conference number followed by the # sign. 5. Please clearly state your name and company name when prompted to do so followed by any key. 6. Please press '1' to begin the conference playback. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOLLOW CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) August 31, February 28, 2002 2002 ASSETS CURRENT ASSETS: Cash and cash investments $25,015 $8,961 Accounts receivable, net 435,550 383,922 Inventories, net 768,292 777,586 Prepaid expenses and other current assets 85,130 60,779 Total current assets 1,313,987 1,231,248 PROPERTY, PLANT AND EQUIPMENT, net 594,331 578,764 GOODWILL 719,826 668,083 OTHER INTANGIBLE ASSETS, net 382,957 425,987 OTHER ASSETS 171,591 165,303 Total assets $3,182,692 $3,069,385 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $992 $54,775 Current maturities of long-term debt 80,976 81,609 Accounts payable 160,291 153,433 Accrued excise taxes 45,627 60,238 Other accrued expenses and liabilities 317,893 245,155 Total current liabilities 605,779 595,210 LONG-TERM DEBT, less current maturities 1,285,575 1,293,183 DEFERRED INCOME TAXES 149,683 163,146 OTHER LIABILITIES 63,381 62,110 STOCKHOLDERS' EQUITY 1,078,274 955,736 Total liabilities and stockholders' equity $3,182,692 $3,069,385 CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (a) (in thousands, except per share data) Comparable (b) Three Months Three Months Three Months Ended Ended Ended August 31, August 31, Percent August 31, Percent 2002 2001 Change 2001 Change Gross sales $898,997 $898,825 0% $898,825 0% Excise taxes (209,191) (209,698) 0% (209,698) 0% Net sales 689,806 689,127 0% 689,127 0% Cost of product sold (496,544) (505,842) -2% (505,842) -2% Gross profit 193,262 183,285 5% 183,285 5% Selling, general and administrative expenses (87,616) (94,284) -7% (87,715) 0% Operating income 105,646 89,001 19% 95,570 11% Equity in earnings of joint venture 3,172 (137) N/A (137) N/A Interest expense, net (27,151) (28,974) -6% (28,974) -6% Income before income taxes 81,667 59,890 36% 66,459 23% Provision for income taxes (32,095) (23,956) 34% (25,919) 24% Net income $49,572 $35,934 38% $40,540 22% Earnings per common share: Basic $0.55 $0.42 30% $0.48 16% Diluted $0.53 $0.41 30% $0.46 15% Weighted average common shares outstanding: Basic 89,691 84,829 6% 84,829 6% Diluted 93,029 87,864 6% 87,864 6% Segment Information: Net sales: Imported Beer and Spirits Imported beer $219,807 $220,225 0% $220,225 0% Spirits 66,687 68,751 -3% 68,751 -3% Net sales $286,494 $288,976 -1% $288,976 -1% Popular and Premium Wine Branded $171,203 $181,638 -6% $181,638 -6% Other 13,277 18,001 -26% 18,001 -26% Net sales $184,480 $199,639 -8% $199,639 -8% U.K. Brands and Wholesale Branded $58,064 $59,400 -2% $59,400 -2% Wholesale 132,255 119,467 11% 119,467 11% Net sales $190,319 $178,867 6% $178,867 6% Fine Wine $34,880 $29,242 19% $29,242 19% Intersegment eliminations $(6,367) $(7,597) -16% $(7,597) -16% Consolidated net sales $689,806 $689,127 0% $689,127 0% Operating income: Imported Beer and Spirits $61,555 $51,361 20% $53,494 15% Popular and Premium Wine 25,699 23,934 7% 25,744 0% U.K. Brands and Wholesale 14,512 13,432 8% 14,989 -3% Fine Wine 12,030 8,098 49% 9,167 31% Corporate Operations (8,150) (7,824) 4% (7,824) 4% Consolidated operating income $105,646 $89,001 19% $95,570 11% (a) Reflects the adoption of EITF Issue No. 01-09. Prior-period has been reclassified to comply with this guidance. (b) Adjusted to exclude amortization of goodwill and indefinite lived intangible assets under SFAS No. 142. CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (a) (in thousands, except per share data) Comparable (b) Six Months Six Months Six Months Ended Ended Ended August 31, August 31, Percent August 31, Percent 2002 2001 Change 2001 Change Gross sales $1,759,460 $1,690,921 4% $1,690,921 4% Excise taxes (419,261) (403,362) 4% (403,362) 4% Net sales 1,340,199 1,287,559 4% 1,287,559 4% Cost of product sold (970,211) (948,384) 2% (948,384) 2% Gross profit 369,988 339,175 9% 339,175 9% Selling, general and administrative expenses (178,377) (180,251) -1% (167,328) 7% Operating income 191,611 158,924 21% 171,847 12% Equity in earnings of joint venture 5,911 (137) N/A (137) N/A Interest expense, net (54,292) (59,159) -8% (59,159) -8% Income before income taxes 143,230 99,628 44% 112,551 27% Provision for income taxes (56,289) (39,851) 41% (43,895) 28% Net income $86,941 $59,777 45% $68,656 27% Earnings per common share: Basic $0.97 $0.71 36% $0.82 19% Diluted $0.94 $0.69 36% $0.80 18% Weighted average common shares outstanding: Basic 89,268 83,668 7% 83,668 7% Diluted 92,562 86,252 7% 86,252 7% Segment Information: Net sales: Imported Beer and Spirits Imported beer $419,513 $396,133 6% $396,133 6% Spirits 138,886 137,792 1% 137,792 1% Net sales $558,399 $533,925 5% $533,925 5% Popular and Premium Wine Branded $320,805 $330,457 -3% $330,457 -3% Other 27,150 35,239 -23% 35,239 -23% Net sales $347,955 $365,696 -5% $365,696 -5% U.K. Brands and Wholesale Branded $112,726 $112,606 0% $112,606 0% Wholesale 264,389 234,473 13% 234,473 13% Net sales $377,115 $347,079 9% $347,079 9% Fine Wine $69,636 $54,094 29% $54,094 29% Intersegment eliminations $(12,906) $(13,235) -2% $(13,235) -2% Consolidated net sales $1,340,199 $1,287,559 4% $1,287,559 4% Operating income: Imported Beer and Spirits $115,976 $95,412 22% $99,562 16% Popular and Premium Wine 42,568 39,329 8% 42,922 -1% U.K. Brands and Wholesale 24,775 22,285 11% 25,327 -2% Fine Wine 23,736 15,146 57% 17,284 37% Corporate Operations (15,444) (13,248) 17% (13,248) 17% Consolidated operating income $191,611 $158,924 21% $171,847 12% (a) Reflects the adoption of EITF Issue No. 01-09. Prior-period has been reclassified to comply with this guidance. (b) Adjusted to exclude amortization of goodwill and indefinite lived intangible assets under SFAS No. 142.SOURCE Constellation Brands, Inc.
CONTACT:
Emilio Ruocco, +1-585-218-3667, or Mark Maring,
+1-585-218-3668, both of Constellation Brands, Inc.
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URL: http://www.cbrands.com
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