Constellation Brands Inc : Reports Fiscal 2012 Results

  •  Achieves comparable basis diluted EPS of $2.34 and reported basis diluted EPS of $2.13; results reflect favorable tax rate benefits 

  • Generates record free cash flow of $716 million 

  • Repurchases 21 million shares for $414 million during fiscal 2012  

  • Board of Directors authorizes new $1 billion share repurchase program   

  • Provides fiscal 2013 outlook; projects comparable basis diluted EPS of $1.93 - $2.03 and reported basis diluted EPS of $1.89 - $1.99; includes target of $550 - $600 million of share repurchases  

  • Projects free cash flow of $425 - $475 million for fiscal 2013 

Fiscal 2012 Financial Highlights*
(in millions, except per share data)
    Comparable     % Change     Reported     % Change
Consolidated net sales $2,654 -20% $2,654 -20%
Operating income $540 1% $487 -3%
Operating margin 20.3% 430 bps 18.3% 320 bps
Equity in earnings of equity method investees**     $229 -7% $229 -6%
Earnings before interest and taxes (EBIT) $769 -1% NA NA
Net income $488 20% $445 -20%
Diluted earnings per share $2.34 23% $2.13 -19%

*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., April 5, 2012 - Constellation Brands, Inc. (NYSE: STZ), the world's leading premium wine company, reported today its fiscal 2012 results.

"We finished the year with positive results and strong marketplace momentum for our U.S. wine and spirits business, which positions us well for the upcoming year," said Rob Sands, president and chief executive officer, Constellation Brands. We also generated record free cash flow, repurchased more than $400 million of stock and acquired the remaining interest in Ruffino, which strengthens our position in the growing Italian wine category."

Fiscal 2012 Net Sales Commentary

Reported consolidated net sales decreased 20 percent due primarily to the divestiture of the Australian and U.K. wine business.

North American net sales on an organic constant currency basis decreased one percent primarily due to a decrease in volume driven largely by the overlap of the fiscal 2011 distributor inventory build as part of the U.S. distributor consolidation initiative, partially offset by favorable product mix shift. "We experienced improving U.S. depletion trends in the fourth quarter and our outstanding brand portfolio is currently outperforming the market in SymphonyIRI channels," said Sands. "These results are being driven by our commitment to innovation, as new products including Simply Naked, Primal Roots and The Dreaming Tree are gaining traction in the marketplace. We are also seeing robust results from our collection of focus brands led by strong performance from Black Box, Rex Goliath, Woodbridge by Robert Mondavi, Ruffino, Kim Crawford and Svedka."

Fiscal 2012 Operating Income and Net Income Commentary

The increase in consolidated comparable basis operating income was driven primarily by lower corporate expenses, partially offset by the divestiture of the Australian and U.K. business and lower earnings in North America.

Constellation's equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $215 million, a decrease of five percent from the prior year.  For fiscal 2012, Crown generated net sales of $2.5 billion, an increase of three percent, and operating income of $431 million, a decrease of five percent.  The increase in net sales was primarily driven by volume growth. Operating income decreased primarily due to higher marketing spend.

"Crown had a great year in the marketplace, as it outperformed the U.S. beer industry, the import category and the other major U.S. suppliers in both case and dollar sales due to product innovation, creative advertising campaigns and strong market execution," said Sands. "Crown posted mid-single digit depletion growth. This growth was driven by Victoria, which is already a "top 25" import brand, Corona Familiar, which reached more than 3.5 million cases in depletions and the double digit growth for Modelo Especial, which recently achieved the 35 million case milestone."

For fiscal 2012, pre-tax restructuring charges and unusual items totaled $54 million compared to $32 million for the prior year.

Interest expense totaled $181 million, a decrease of seven percent. The decrease was primarily due to lower average borrowings.

The comparable basis effective tax rate for fiscal 2012 was 17 percent compared to a 30 percent rate for the prior year. The rate for both periods reflects the favorable outcome of various tax items.  

Free Cash Flow and Common Stock Repurchases Commentary

Free cash flow for fiscal 2012 totaled $716 million as compared to $531 million in fiscal 2011. The increase was primarily due to favorable cash tax benefits. During fiscal 2012, the company repurchased 21.2 million shares of common stock at a cost of $414 million. This follows a repurchase of 17.2 million shares of common stock at a cost of $300 million in fiscal 2011.

"Our record free cash flow generation enabled us to fund the stock repurchases, acquire the remaining interest in the Ruffino business and reduce our debt," said Bob Ryder, chief financial officer, Constellation Brands. "For fiscal 2013, the company is targeting free cash flow in the range of $425 to $475 million. As expected, the most significant driver of the change in free cash flow is the absence of fiscal 2012 cash tax benefits."  

Fourth Quarter 2012 Financial Highlights*
(in millions, except per share data)
    Comparable     % Change     Reported     % Change
Consolidated net sales $628 -12% $628 -12%
Operating income $123 19% $79 -23%
Operating margin 19.6% 510 bps 12.6% -180 bps
Equity earnings     $49 -5% $49 -5%
EBIT $172 11% NA NA
Net income $138 85% $103 -63%
Diluted earnings per share $0.69 97% $0.51 -61%

Fourth Quarter 2012 Net Sales Commentary

Reported consolidated net sales decreased 12 percent due primarily to the divestiture of the Australian and U.K. wine business.

North American net sales on an organic constant currency basis increased five percent primarily due to volume growth and favorable product mix.

Fourth Quarter 2012 Operating Income and Net Income Commentary

The increase in consolidated comparable basis operating income was driven primarily by higher net sales in North America and lower corporate expenses, partially offset by the divestiture of the Australian and U.K. business.

Constellation's equity earnings in the Crown Imports joint venture totaled $49 million, an increase of two percent from the prior year fourth quarter.  For fourth quarter 2012, Crown generated net sales of $525 million, an increase of nine percent, and operating income of $99 million, an increase of two percent.  The increase in net sales for Crown was primarily driven by volume growth. Operating income increased primarily due to higher net sales partially offset by increased marketing spend.  

For fourth quarter 2012, pre-tax restructuring charges and unusual items totaled $44 million compared to one million for the prior year.

Interest expense totaled $48 million, an increase of one percent.  

The comparable basis effective tax rate for fourth quarter 2012 was negative 11 percent compared to a 31 percent rate for the prior year fourth quarter. Both periods reflect the favorable outcome of various tax items.  

Common Share Repurchase Authorizations

As discussed above, the company repurchased 21.2 million shares of common stock at a cost of $414 million during fiscal 2012. Subsequent to the end of fiscal 2012 through March 31, 2012, the company repurchased an additional 2.1 million shares at a cost of $46 million. Through March 31, 2012, the company has purchased a total of 23.3 million shares at a cost of $460 million under its current $500 million share repurchase authorization.

Constellation's Board of Directors has authorized the repurchase of up to $1 billion of the company's common stock which is in addition to the current $500 million share repurchase authorization.  The company currently expects to execute the new $1 billion share repurchase authorization from time to time over a two-year period, subject to then current market conditions and management's discretion.  The company currently anticipates that in fiscal 2013 it will repurchase approximately 50 percent of this new authorization. 

"In the near term, we plan to take advantage of the favorable credit and public debt markets, which should provide ample liquidity as we execute our new stock repurchase authorization," said Ryder. "Our goal is to continue to maintain a target leverage ratio of three to four times debt to comparable basis EBITDA during fiscal 2013."

Summary

"We believe our marketplace momentum positions us to grow in-line with the U.S. wine and spirits category in fiscal 2013," said Sands. "However, comparable basis EBIT growth is expected to be tempered by brand building and sales investments.  Our underlying free cash flow remains solid and provides flexibility in the management of our capital structure while allowing us to continue to return value to stockholders in the form of ongoing share repurchases."

Outlook

The table below sets forth management's current diluted EPS expectations for fiscal 2013 compared to fiscal 2012 actual results, both on a reported basis and a comparable basis.  

Constellation Brands Fiscal Year 2013
Diluted Earnings Per Share Outlook

Reported Basis Comparable Basis
FY13
Estimate
FY12
Actual
FY13
Estimate
FY12
Actual
Fiscal Year Ending
Feb. 28/29

    $1.89 - $1.99

    $2.13

    $1.93 - $2.03

    $2.34

Full-year fiscal 2013 guidance includes the following current assumptions:

  • Interest expense: approximately $210 - $220 million 

  • Tax rate: approximately 34 percent  

  • Weighted average diluted shares outstanding: approximately 185 - 190 million 

  • Free cash flow: approximately $425 - $475 million 

  • Common stock share repurchases: approximately $550 - $600 million 

Conference Call
A conference call to discuss fourth quarter and full year fiscal 2012 results and fiscal outlook will be hosted by President and Chief Executive Officer Rob Sands and Executive Vice President and Chief Financial Officer Bob Ryder on Thurs., April 5, 2012 at 10:30 a.m. (eastern).  The conference call can be accessed by dialing +973-935-8505 beginning 10 minutes prior to the start of the call.  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 Constellation'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.  Operating income, net income and diluted EPS on a comparable basis ("comparable"), exclude restructuring charges and unusual items.  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 is the world's leading premium wine company that achieves success through an unmatched knowledge of wine consumers, storied brands that suit varied lives and tastes, and talented employees worldwide. With a broad portfolio of widely admired premium products across the wine, beer and spirits categories, Constellation's brand portfolio includes Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Estancia, Ravenswood, Ruffino, Jackson-Triggs, Inniskillin, Kim Crawford, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka.

Constellation Brands (NYSE: STZ and STZ.B) is a S&P 500 Index and Fortune 1000® company with more than 100 brands in our portfolio, sales in about 100 countries and operations in approximately 30 facilities. The company believes that industry leadership involves a commitment to our brands, to the trade, to the land, to investors and to different 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 about Constellation, visit the company's website at www.cbrands.com.

Forward-Looking Statements

The statements made under the heading Outlook, and all statements other than statements of historical facts set forth in this news release regarding Constellation's 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 may reiterate the Projections. Prior to the start of the company's quiet period, which will begin at the close of business on May 31, 2012, the public can continue to rely on the Projections as still being Constellation's current expectations on the matters covered, unless Constellation publishes a notice stating otherwise. During Constellation's "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:

  • the exact duration of the share repurchase implementations and the amount and timing of any share repurchases; 

  • ability to achieve target debt leverage ratio due to different financial results from those anticipated; 

  • ability to realize plans to access the credit and public debt markets in the event of changed conditions in credit and capital markets; 

  • 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;  

  • accuracy of the bases for forecasts relating to joint ventures and associated costs, losses, purchase obligations and capital investment requirements;  

  • 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 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; 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, 2011, 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


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