• U.S. beer business acquisition drives significant increase in third quarter sales and earnings

  • Achieves comparable basis diluted EPS of $1.10 and reported basis diluted EPS of $1.07

  • Increases fiscal 2014 outlook; expects comparable basis diluted EPS of $3.10 - $3.20; expects reported basis diluted EPS of $9.65 - $9.75

  • Improved outlook primarily driven by strong beer business performance

  • Decreases debt by $166 million during the quarter

  • Updates free cash flow projection; expects $525 - $575 million for fiscal 2014

Third Quarter 2014 Financial Highlights*
(in millions, except per share data)
Comparable % Change Reported % Change
Net sales $1,443 88% $1,443 88%
Operating income $375 117% $364 129%
Operating margin 26.0% +350 bps 25.2% +450 bps
Equity in earnings of equity method investees** $18 -66% $18 -66%
Earnings before interest and taxes (EBIT) $393 74% NA NA
Net income $217 83% $211 93%
Diluted earnings per share $1.10 75% $1.07 84%

*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. 8, 2014 - Constellation Brands, Inc. (NYSE: STZ and STZ.B), a leading beverage alcohol company, reported today its third quarter 2014 results.

"I am very pleased with the overall performance of our newly consolidated beer business, which is the highlight of the third quarter and the primary driver of the upward revision to our EPS guidance for fiscal 2014," said Rob Sands, president and chief executive officer, Constellation Brands. "The strong marketplace momentum we experienced this summer for our beer portfolio, especially Corona and Modelo Especial, continued throughout the fall and into the holiday selling season. New marketing campaigns along with superior sales and distributor execution at retail helped drive these outstanding results. From an operational perspective, the Nava brewery in Mexico is executing successfully in all key performance areas and expansion activities continue to proceed."

Net Sales Commentary

The significant increase for third quarter consolidated net sales was driven by $662 million of incremental net sales related to the consolidation of Crown. For the quarter, net sales for the beer segment increased 21 percent primarily due to volume growth driven by strong consumer demand, the return of distributor inventories to more normal levels and a favorable comparison versus last year's third quarter.

"Crown experienced exceptional results for the third quarter posting double-digit sales and depletion growth. All core beer brands demonstrated year-over-year volume increases, with the overall portfolio continuing to significantly outperform the growth of the U.S. beer market," said Sands. "From an innovation perspective, the draft format is growing in all key markets and the new Modelo Especial Chelada rollout is exceeding expectations in the states where it has already been introduced. Due to strong year-to-date performance, we now expect Crown's underlying profit growth to be in the low to mid-teens range for the year."

Wine and spirits net sales on an organic constant currency basis increased three percent as wine volume growth was partially offset by higher promotional spend and lower bulk spirits sales. "As expected, throughout the quarter we began to see the acceleration of our U.S. wine depletion trends during the key holiday selling season," Sands added. "Year-to-date, we are outperforming the U.S. wine market across all channels on a volume basis driven by investments behind our portfolio and strong performance of some of our most popular Focus Brands including Rex Goliath, Mark West, Kim Crawford, Estancia, Ruffino, Black Box and Woodbridge by Robert Mondavi. However, this year's financial performance has been tracking below our expectations and we now expect operating profit for the wine and spirits business to be flat to down slightly for the year."

Operating Income and Net Income Commentary

The increase in consolidated comparable basis operating income includes an incremental benefit of $213 million of operating income from the consolidation of results for Crown and the Mexican brewery as a result of the beer business acquisition. The decrease in wine and spirits operating income primarily reflects higher promotion, product and marketing costs, partially offset by volume growth.

Due to the timing of the close of the beer acquisition, the company did not recognize equity earnings from its original 50 percent interest in the Crown joint venture during the third quarter. For the prior year third quarter, the company recorded $39 million of equity earnings for the Crown joint venture. Equity earnings for the wine and spirits segment in the third quarter increased $4 million driven by strong results for Opus One.

Interest expense totaled $90 million, an increase of 46 percent. The increase was primarily due to higher average borrowings driven by the financing for the beer business acquisition, partially offset by lower average interest rates.

The comparable basis effective tax rate for the third quarter was 28 percent which reflected the benefits from integrating the beer business as well as higher than anticipated foreign tax credits. This compares to a 28 percent tax rate for the prior year third quarter which also included the benefit of foreign tax credits. The company now expects the comparable basis effective tax rate to approximate 31 percent for fiscal year 2014.

Free Cash Flow Commentary

Free cash flow for the first nine months of fiscal 2014 totaled $543 million as compared to $337 million for the same period last year. The increase was primarily due to incremental benefits from the beer business acquisition, partially offset by higher interest payments.

"We are pleased with our strong free cash flow results through the third quarter, but we expect brewery capital expansion investments to significantly increase in the fourth quarter of this fiscal year," said Bob Ryder, chief financial officer, Constellation Brands. "We have updated our free cash flow projection to reflect better than anticipated beer business results and now expect to generate free cash flow in the range of $525 million to $575 million for fiscal 2014."

Beer Business Acquisition

The company completed its acquisition of Grupo Modelo's U.S. beer business from Anheuser-Busch InBev for approximately $4.75 billion on June 7, 2013. The transaction includes full ownership of Crown which provides Constellation with complete, independent control of the U.S. commercial business; a state-of-the-art brewery in Nava (Piedras Negras), 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 2014 compared to fiscal 2013 actual results, both on a reported basis and a comparable basis.

Reported Basis Comparable Basis
Fiscal Year Ending
Feb. 28

$9.65 - $9.75


$3.10 - $3.20


Full-year fiscal 2014 guidance also includes the following current assumptions:

  • Interest expense: approximately $325 million

  • Tax rate: approximately 11 percent on a reported basis and 31 percent on a comparable basis, primarily due to the non-taxable gain on the remeasurement to fair value of the company's original 50 percent interest in Crown and the non-deductible goodwill impairment charge

  • Weighted average diluted shares outstanding: approximately 198 million

  • Free cash flow: approximately $525 - $575 million

  • Capital expenditures: approximately $200 - $230 million

Conference Call

A conference call to discuss third quarter 2014 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. 8, 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) 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 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 (NYSE: STZ and STZ.B) is an S&P 500 Index and Fortune 1000® wine, beer and spirits company with more than 100 brands in its portfolio, sales in approximately 100 countries, operations in about 40 facilities and approximately 6,000 talented employees. Founded in 1945, Constellation has grown to become the world's leader in premium wine and the number three beer company in the U.S. with brands that people love, including: Arbor Mist, Black Box, Blackstone, Clos du Bois, Estancia, Franciscan Estate, Inniskillin, Kim Crawford, Mark West, Mount Veeder, Nobilo, Ravenswood, Rex Goliath, Robert Mondavi, Ruffino, SIMI, Toasted Head, Wild Horse, Corona Extra, Corona Light, Modelo Especial, Negra Modelo, Pacifico, Tsingtao, Victoria, Black Velvet Canadian Whisky and SVEDKA Vodka.

Based in Victor, N.Y., the company believes that industry leadership involves a commitment to its brands, to the trade, to the land, to investors and to 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, 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 Feb. 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.

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 take place on expected terms and timetable and receipt of any necessary regulatory approvals;

  • accuracy of supply projections, including those relating to brewery expansion;

  • timeframe and actual costs associated with the brewery 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;

  • 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;

  • final management determinations and independent appraisals, including those relating to purchase price allocation, may vary materially from current management estimates of the fair value of assets acquired and liabilities assumed in the beer business acquisition;

  • timing of cash payment for beer business acquisition purchase price adjustment and actual amount of certain working capital adjustments relating to the beer business acquisition may vary from management's current expectations;

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

  • 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;

  • 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 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, 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;

  • 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, 2013, which could cause actual future performance to differ from current expectations.

Angela Howland Blackwell: 585-678-7141
Cheryl Gossin: 585-678-7191
Investor Relations
Patty Yahn-Urlaub: 585-678-7483
Bob Czudak: 585-678-7170