Constellation Brands Reports Third Quarter Fiscal 2013 Results

  • Achieves comparable basis diluted EPS of $0.63 and reported basis diluted EPS of $0.58  

  • Results include lower than expected tax rate 

  • Updates fiscal 2013 outlook for tax rate benefits; expects comparable basis diluted EPS of $2.10 - $2.20 and reported basis diluted EPS of $1.97 - $2.07  

  • Reaffirms free cash flow target of $450 - $500 million for fiscal 2013 

  • Acquisition of remaining 50 percent interest in Crown Imports continues to be targeted to close first quarter calendar 2013 

Third Quarter 2013 Financial Highlights*
(in millions, except per share data)
    Comparable    % Change    Reported    % Change
Consolidated net sales$7679%$7679%
Operating income$17313%$159-1%
Operating margin22.5%70 bps20.7%-220 bps
Equity in earnings of equity method investees**    $53-1%$53-2%
Earnings before interest and taxes (EBIT)$2269%NANA
Net income$11918%$1104%
Diluted earnings per share$0.6326%$0.5812%

*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. 9, 2013 - Constellation Brands, Inc. (CBI) (NYSE: STZ and STZ.B), the world's leading premium wine company, reported today its third quarter 2013 results.

"The year is unfolding as we expected and we are on track to meet our financial and strategic goals for the year," said Rob Sands, president and chief executive officer, Constellation Brands. "We continue to experience strong marketplace momentum across our beer, wine and spirits portfolio and we were well positioned at retail during the key holiday selling season.  We are especially excited about the prospect of achieving the next significant milestone in the history of our company by obtaining 100 percent ownership of Crown Imports, which will solidify Constellation's position as the largest U.S. multi-category supplier across the beverage alcohol segment. We continue to expect this transaction to close during the first calendar quarter of this year."

Net Sales Commentary

Wine and spirits net sales on an organic constant currency basis increased six percent primarily due to an increase in volume and favorable product mix, partially offset by higher promotional costs.

"We continue to post solid depletion trends for our portfolio and outperform the U.S. wine and spirits industry in the SymphonyIRI channels as our promotional investments have driven distribution gains at retail," said Sands. "Innovation efforts are also playing a key role in our marketplace success and Woodbridge, Rex Goliath, Kim Crawford, Ruffino and Mark West are driving excellent performance for our Focus Brands portfolio."   

Operating Income and Net Income Commentary

The increase in consolidated comparable basis operating income was driven primarily by the favorable net sales growth combined with benefits from Mark West and Ruffino, partially offset by higher SG&A costs.

The company's equity earnings from its 50 percent interest in the Crown joint venture totaled $39 million compared to $43 million from the prior year third quarter. For third quarter 2013, Crown generated net sales of $547 million, an increase of one percent, and operating income of $79 million, a decrease of nine percent.  Third quarter net sales for Crown were tempered by the second quarter wholesaler buy-in of product in advance of planned price increases and the loss of St. Pauli Girl brand volume.  As expected, operating income was impacted by the volume shift and the timing of marketing spend.

"Crown continues to outperform the U.S. beer industry and the import category led by strong performance of Modelo Especial, which recently surpassed the 40 million case milestone for calendar 2012," said Sands. "The brand is gaining distribution at retail and experiencing continued discovery by general market consumers in addition to the already strong growth driven by Hispanic consumers.  Crown's marketplace results are also benefiting from Corona's 'Find Your Beach for the Game' promotion and Corona Light's 'Refreshing Change of Beer' advertising campaign."  

Interest expense totaled $61 million, an increase of 33 percent. The increase was primarily due to higher average borrowings.

The comparable basis effective tax rate for third quarter 2013 was 28 percent which reflected higher foreign tax credits and compares to a 37 percent rate for the prior year third quarter. The company now anticipates the full year effective tax rate for fiscal 2013 to approximate 27 percent, which is the driver of the improved diluted EPS guidance for the year.

Free Cash Flow Commentary

Free cash flow for the first nine months of fiscal 2013 totaled $337 million as compared to $587 million for the same period last year. The decrease was primarily due to higher U.S. grape and bulk wine purchases in fiscal 2013 and the receipt of tax refunds in the prior year period. The company continues to target free cash flow of $450 - $500 million for fiscal 2013.

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.  

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

    $1.97 - $2.07

    $2.13

    $2.10 - $2.20

    $2.34

Full-year fiscal 2013 guidance includes the following current assumptions, but excludes any impact from the closing of the purchase of the remaining 50 percent interest in the Crown Imports joint venture:

  • Interest expense: approximately $225 - $235 million 

  • Tax rate: approximately 27 percent  

  • Weighted average diluted shares outstanding: approximately 190 million 

  • Free cash flow: approximately $450 - $500 million 

Conference Call

A conference call to discuss third quarter 2013 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. 9, 2013 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: 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, Inc.

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 more than 4,400 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, Kim Crawford, Inniskillin, Franciscan Estate, Mark West, Ruffino, Simi, Estancia, 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 40 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 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 on Feb. 28, 2013, 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.  The transaction between Constellation Brands and Anheuser-Busch InBev SA/NV regarding the purchase by Constellation Brands of the 50% portion of Crown Imports LLC which Constellation Brands does not already own (the "Crown Acquisition") is subject to the satisfaction of certain closing conditions, including receipt of necessary regulatory approvals and the consummation of certain transactions between Anheuser-Busch InBev SA/NV and Grupo Modelo, S.A.B. de C.V., and certain of its affiliates (the "Modelo Transaction").  There can be no assurance the Crown Acquisition will occur or will occur on the timetable projected by the company.  The availability of financing under the company's senior credit facility is subject to satisfaction of the terms and conditions contained in the underlying documents.  

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, incl