Constellation Brands Reports Second Quarter Fiscal 2016 Results

  • Achieves comparable basis EPS of $1.56 and reported basis EPS of $1.49 driven by beer business and favorable quarterly tax rate
  • Generates $508 million of free cash flow and $803 million of operating cash flow
  • Increases fiscal 2016 outlook driven primarily by strong beer business results; expects comparable basis EPS of $5.00 - $5.20 and reported basis EPS of $4.73 - $4.93
  • Increases fiscal 2016 free cash flow projection to $200 - $300 million including operating cash flow target of at least $1.25 billion; total capital expenditure estimate of $1.05 - $1.15 billion remains unchanged for fiscal 2016
  • Brewery and glass plant expansions continue to proceed as planned
  • Completes Meiomi wine brand acquisition in August 2015
  • Declares quarterly cash dividend
Second Quarter 2016 Financial Highlights*              
(in millions, except per share data)              
  Comparable   % Change   Reported   % Change
Net sales $1,733   8%   $1,733   8%
Operating income $501   21%   $479   27%
Operating margin 28.9%   +320 bps   27.7%   +410 bps
Earnings before interest and taxes (EBIT) $501   21%   NA   NA
Net income attributable to CBI $318   43%   $302   54%
Diluted net income per share attributable to CBI (EPS) $1.56   41%   $1.49   52%

*Definitions of reported and comparable, as well as reconciliations of non-GAAP financial measures, are contained elsewhere in this news release.
NA=Not Applicable

VICTOR, N.Y., Oct. 7, 2015 - Constellation Brands, Inc. (NYSE: STZ and STZ.B), a leading beverage alcohol company, reported today its second quarter 2016 results.

"We posted outstanding results for our second quarter driven by the impressive, sustained momentum of our beer business, which is also driving an increase in our EPS projection for the year. I am pleased that our glass plant and Nava brewery expansions continue to progress as planned, with our first incremental five million hectoliters of capacity scheduled to become operational by calendar year end. Our wine and spirits business posted improved margins, strong sales growth for our spirits portfolio and excellent financial results for our Canadian business," said Rob Sands, president and chief executive officer, Constellation Brands.

Net Sales Commentary

For the quarter, the company generated consolidated organic net sales growth on a constant currency basis of nine percent.

Beer net sales increased 14 percent, primarily due to volume growth. Beer depletions grew 10 percent, reflecting strong consumer demand for the beer portfolio. The company estimates that beer recall activities during the second quarter of fiscal 2015 resulted in the reversal of approximately two million case shipments and a $37 million reduction of net sales. Net sales growth for third quarter fiscal 2016 is expected to be impacted due to the $37 million shift in net sales from second quarter fiscal 2015 to third quarter fiscal 2015 in connection with the product recall.

"During the second quarter, Constellation's beer business represented 45% of total U.S. beer industry volume growth in IRI channels and posted its 22nd consecutive quarter of volume share gains. These stellar results were powered by the continuing success of our two largest brands, Corona Extra and Modelo Especial," said Sands. "In addition to strong volume growth across our portfolio, we are experiencing favorable commodity and foreign currency benefits, as well as better than expected results from our glass plant, that are driving improved operational results and enabling an increase in our margin expectation for the beer business in fiscal 2016."

Wine and spirits net sales on an organic constant currency basis increased three percent. This primarily reflects volume growth within the spirits portfolio.

"During the quarter, we experienced strong depletion trends of more than six percent for our wine and spirits focus brands, led by double digit growth of Kim Crawford, Black Box, The Dreaming Tree and Ruffino, as investments in these key brands are paying off. We have successfully integrated Meiomi into our existing wine portfolio and we are working to expand distribution to drive incremental growth for this brand," said Sands. "The spirits business delivered growth across the portfolio, led by Paul Masson Grande Amber Brandy and SVEDKA Vodka."

Operating Income and Net Income Commentary

For the quarter, consolidated comparable basis operating income increased 21 percent.

Beer operating income increased 31 percent, primarily due to volume growth, lower cost of product sold and favorable pricing for the beer portfolio. The four percent increase in wine and spirits operating income primarily reflects volume growth and lower cost of product sold, partially offset by unfavorable foreign currency translation.

For second quarter 2016, pre-tax comparable adjustments totaled $23 million as compared to $39 million for the same period last year.

Interest expense for second quarter 2016 totaled $77 million, a decrease of nine percent. The decrease was primarily due to lower average interest rates.

The comparable basis effective tax rate for second quarter 2016 was 24.6 percent, which reflects the favorable outcome of various tax items for the quarter, as compared to a 32.3 percent tax rate for the prior year second quarter. The company continues to expect a comparable basis effective tax rate of approximately 30.5 percent for fiscal year 2016.

Free Cash Flow Commentary

Free cash flow for the first six months of fiscal 2016 totaled $508 million as compared to $360 million for the same period last year. The increase is primarily driven by higher operating cash flow.

"We are increasing free cash flow guidance for fiscal 2016 to a range of $200 to $300 million. The anticipated increase is being primarily driven by higher earnings for the beer business and lower tax and interest payments, as we now expect to generate operating cash flow of $1.25 to $1.45 billion," said David Klein, executive vice president and chief financial officer, Constellation Brands.

Quarterly Dividend

On October 6, 2015, Constellation's board of directors declared a quarterly cash dividend of $0.31 per share of Class A Common Stock and $0.28 per share of Class B Common Stock, payable on November 24, 2015, to stockholders of record as of the close of business on November 9, 2015.


The table below sets forth management's current EPS expectations for fiscal 2016 compared to fiscal 2015 actual results, both on a comparable basis and a reported basis.

  Comparable Basis Reported Basis
Fiscal Year Ending Feb. 28/29 $5.00 - $5.20 $4.44   $4.73 - $4.93 $4.17  

For fiscal 2016, the beer business continues to expect net sales growth of approximately 10 percent but now expects operating income growth in the 15 - 18 percent range. For the wine and spirits business, the company continues to expect net sales and operating income growth to be in the low-to-mid single-digit range before any benefit from the Meiomi acquisition.

Fiscal 2016 guidance also includes the following current assumptions, including the acquisition of the Meiomi wine brand:

  • Interest expense: approximately $310 - $320 million
  • Tax rate: approximately 30.5 percent
  • Weighted average diluted shares outstanding: approximately 204 million
  • Free cash flow: approximately $200 - $300 million
  • Operating cash flow: approximately $1.25 - $1.45 billion
  • Capital expenditures: approximately $1.05 - $1.15 billion, including $950 million - $1.05 billion for the beer business

Conference Call

A conference call to discuss second quarter 2016 results and outlook will be hosted by President and Chief Executive Officer Rob Sands and Executive Vice President and Chief Financial Officer David Klein on Wednesday, Oct. 7, 2015 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 the company's website: under "Investors," prior to the call.


Reported basis ("reported") operating income, net income and EPS are as reported under generally accepted accounting principles. Operating income, net income and EPS on a comparable basis ("comparable"), exclude items that affect comparability ("comparable adjustments"), as they are not reflective of core operations of the segments. The company's measure of segment profitability excludes comparable adjustments, 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.

About Constellation Brands
Constellation Brands (NYSE: STZ and STZ.B) is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world's leader in premium wine selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company's premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky.

Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,700 talented employees. We express our company vision: to elevate life with every glass raised. To learn more, visit

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, estimated diluted EPS, expected cash flow, prospects, future payments of dividends, 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 Nov. 30, 2015, 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 and joint venture glass plant expansion activities take place with expected scope, on expected terms and timetable, and with receipt of any necessary regulatory approvals;
  • accuracy of supply projections, including those relating to brewery expansion and glass sourcing;
  • timeframe and actual costs associated with beer supply, brewery expansion and glass sourcing, including joint venture glass plant 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;
  • free cash flow, operating cash flow and capital expenditures to support long-term growth may vary from management's current estimates;
  • timing and volume amount of beer shipments to wholesalers may vary from current expectations due to actual consumer demand;
  • accuracy of projections associated with the Meiomi wine brand;
  • 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;
  • the exact duration of the share repurchase implementation and the amount and timing of any additional share repurchases;
  • amount and timing of future dividends are subject to the determination and discretion of the Board of Directors;
  • ability to use cash flow to fund dividends could be affected by unanticipated increases in net total debt, inability to generate cash flow at the levels anticipated, and failure to generate expected earnings;
  • 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, 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, 2015, which could cause actual future performance to differ from current expectations.

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