• Achieves comparable basis diluted EPS of $1.11 and reported basis diluted EPS of $0.98; results impacted by higher tax rate and beer recall as company expects beer sales shift from second to third quarter; maintains annual beer guidance
  • Reaffirms fiscal 2015 comparable basis diluted EPS outlook of $4.10 - $4.25 and updates reported basis diluted EPS outlook to $3.85 - $4.00
  • Updates free cash flow projection driven by incremental brewery expansion and glass sourcing initiatives: expects $275 - $350 million for fiscal 2015 including operating cash flow target of at least $1 billion and total capital expenditure estimate of $725 - $775 million
Second Quarter 2015 Financial Highlights*
(in millions, except per share data)
Comparable % Change Reported % Change
Net sales $1,608 10% $1,604 10%
Operating income $413 17% $379 -77%
Operating margin 25.7% +160 bps 23.6% NM
Earnings before interest and taxes (EBIT) $413 16% NA NA
Net income $222 18% $196 -87%
Diluted earnings per share $1.11 16% $0.98 -87%

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

VICTOR, N.Y., OCT. 2, 2014 - Constellation Brands, Inc. (NYSE: STZ and STZ.B), a leading beverage alcohol company, reported today its second quarter 2015 results.

"I am pleased with our results which reflect another quarter of excellent performance from our beer business. This was driven by the outstanding efforts of our wholesalers, retailers and employees in executing our plans in the marketplace during the key summer selling season as we achieved eight percent depletion growth during the quarter. I'm also grateful for the dedication and diligence of this group who acted swiftly and thoroughly during our previously announced recall efforts. Our wine and spirits performance for the quarter was solid," said Rob Sands, president and chief executive officer, Constellation Brands. "While we expect to see some shift in beer sales from the second quarter into the third quarter as a result of the recall, we remain on track to achieve our comparable basis EPS goal for fiscal 2015."

Net Sales Commentary

The 10 percent increase in consolidated net sales was driven by $73 million of incremental net sales which represents the consolidation of one additional week of beer business net sales in the second quarter 2015 due to the timing of the beer business acquisition. In addition, the company posted consolidated organic growth of five percent.

For the quarter, net sales for the beer segment increased nine percent primarily due to volume growth driven by strong consumer demand. This result includes the reversal of approximately two million case shipments to wholesalers as part of the recall actions which translates to a reduction of approximately $37 million of net sales for the second quarter. The company expects to replenish this volume with shipments to wholesalers primarily during the third quarter.

"We continue to invest behind our beer portfolio with creative advertising and promotional programs like our '120 Days of Summer' campaign. Our beer business continued to significantly outperform the industry during the second quarter driven by Modelo Especial, Corona Extra, the roll-out of Modelo Especial Chelada, and market expansion for Victoria," said Sands. "We are also pleased with the progress made in increasing our draft format presence in the on-premise channel. These efforts are being led by the Corona Light draft, which expanded to 35 new markets earlier this year."

Wine and spirits net sales on a constant currency basis increased three percent. This primarily reflects higher shipment volume and lower promotion expense. "During the second quarter, we experienced improving depletion trends and favorable product mix driven by some of our fastest-growing wine and spirits brands, including Kim Crawford, SVEDKA Vodka, Mark West, Ruffino, Black Box and The Dreaming Tree," said Sands.

Operating Income and Net Income Commentary

The increase in consolidated comparable basis operating income includes an incremental benefit of $22 million due to the timing of the beer business acquisition and excellent volume growth for the base beer business. These benefits were partially offset by higher marketing and general and administrative expenses. The increase in wine and spirits operating income primarily reflects higher volume and lower promotion expense.

For the second quarter 2015, pre-tax unusual items totaled $39 million. This included an estimated $9 million reduction, net of recoveries, to operating income as a result of the company's previously announced voluntary recall of select packages containing 12-ounce bottles of Corona Extra where certain glass bottles contained defects. The affected bottles came from a glass plant operated by a third-party manufacturer which supplies the Nava brewery with bottles.

The second quarter of fiscal 2014 included a $1.6 billion non-cash gain on the remeasurement to fair value of the company's original 50 percent interest in the Crown Imports joint venture as a result of the beer business acquisition and $301 million of charges related to non-cash impairments of goodwill and intangible assets associated with the company's acquired Canadian wine business.

Interest expense for the second quarter totaled $85 million, a decrease of six percent. The decrease was primarily due to lower average interest rates.

The comparable basis effective tax rate for the second quarter 2015 was 32 percent compared to a 29 percent tax rate for the prior year second quarter, which reflected the favorable outcome of various tax items.

The reported basis effective tax rate for the second quarter 2015 was 32 percent compared to a four percent tax rate for the prior year second quarter, which reflected the recognition of the $1.6 billion non-taxable gain and the non-deductible goodwill impairment charge.

Free Cash Flow Commentary

Free cash flow for the first six months of fiscal 2015 totaled $360 million as compared to $440 million for the same period last year. Incremental benefits from the beer business acquisition were more than offset by higher capital expenditures related primarily to the expansion of the Nava brewery in Mexico.

"Earlier today we announced our new glass sourcing strategy and plans to add an incremental five million hectoliters of production capacity to our brewery in Nava, Mexico, which will take our total capacity to 25 million hectoliters at this facility. In addition, we outlined the additional capital investments needed for these initiatives which are designed to support the strong growth of the beer business over the long-term. As a result of these activities, we are increasing our total capital expenditure estimate for fiscal 2015 to a range of $725 - $775 million versus our previous range of $575 - $625 million. Due to this higher capital expenditure estimate, we are now targeting free cash flow for fiscal 2015 to be in the range of $275 - $350 million versus our previous range of $425 - $500 million," said Bob Ryder, chief financial officer, Constellation Brands. "We still expect to generate operating cash flow of at least $1 billion for fiscal 2015 and despite the higher capital expenditure investments, we continue to expect our debt-to-comparable basis EBITDA ratio to be below 4 times during fiscal 2016."

Beer Business Acquisition

The company completed its acquisition of Grupo Modelo's U.S. beer business from Anheuser-Busch InBev on June 7, 2013 for approximately $5.3 billion, including $558 million that was paid as a post-closing purchase price adjustment in June 2014. The transaction includes full ownership of Crown, which provides Constellation with complete, independent control of its U.S. commercial business; a state-of-the-art brewery in Nava, 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.


The table below sets forth management's current diluted EPS expectations for fiscal 2015 compared to fiscal 2014 actual results, both on a reported basis and a comparable basis.

Reported Basis Comparable Basis
Fiscal Year Ending Feb. 28 $3.85 - $4.00 $9.83 $4.10 - $4.25 $3.25

Full-year fiscal 2015 guidance includes the following current assumptions:

  • Interest expense: approximately $345 - $355 million
  • Tax rate: approximately 30 percent
  • Weighted average diluted shares outstanding: approximately 201 million
  • Free cash flow: approximately $275 - $350 million
  • Capital expenditures: approximately $725 - $775 million, including $600 - $650 million for the beer business

Conference Call

A conference call to discuss second quarter 2015 results and outlook, including the company's glass sourcing strategy and incremental brewery expansion will be hosted by President and Chief Executive Officer Rob Sands and Executive Vice President and Chief Financial Officer Bob Ryder on Thursday, Oct. 2, 2014 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), a copy of the company's announcement regarding its glass sourcing strategy and incremental brewery expansion, 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.


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 items that affect comparability ("unusual items"). The company's measure of segment profitability excludes 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.

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 2013, Constellation was one of the best performing stocks in the S&P 500. 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 6,300 talented employees. We express our company 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 Nov. 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. The glass sourcing strategy transactions between Constellation Brands and Anheuser-Busch InBev SA/NV regarding a glass plant purchase and between Constellation Brands and Owens-Illinois regarding formation of a joint venture and expansion of a glass plant are subject to the satisfaction of certain closing conditions and receipt of any required regulatory approvals. There can be no assurance that either of these transactions will occur or will occur on the timetable contemplated hereby.

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 glass sourcing strategy transactions 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 brewery expansion and glass sourcing 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, capital expenditures to support long-term growth, and debt leverage ratios 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;
  • 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;
  • 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, 2014, which could cause actual future performance to differ from current expectations.

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Investor Relations
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