FAIRPORT, N.Y., Jan. 6 /PRNewswire-FirstCall/ -- Constellation Brands, Inc. (NYSE: STZ, ASX: CBR), a leading international producer and marketer of beverage alcohol brands, today reported record net sales of $987 million for its third quarter ended November 30, 2003. Net sales increased 34 percent, led by the addition of wine sales from the Hardy acquisition, double-digit growth in beer sales and the U.K. wholesale business, and a positive two percent impact from currency.
Net income as reported under generally accepted accounting principles ("reported") for the third quarter increased $18 million or 29 percent to reach $83 million and includes restructuring and related charges and unusual costs of $8 million after tax. Net income on a comparable basis, excluding the restructuring and related charges and unusual costs, increased 42 percent to reach a record $91 million. Reported diluted earnings per share increased six percent to reach $0.73 per share, including a $0.07 per share impact from the restructuring and related charges and unusual costs. Excluding these charges, diluted earnings per share increased 16 percent to reach $0.80 per share.
Chairman and Chief Executive Officer Richard Sands said, "Constellation's strengths -- our broad portfolio crossing three major beverage alcohol categories, our vast geographical reach across North America, Europe and Australia, and our scale which provides strong routes-to-market -- together enabled us to grow at the high end of our expectations. On a category-by- category basis, the beer pricing environment remains strong and our price increase on select imported brands is being rolled out market-by-market. The wine pricing environment continues to be competitive, and our strategy of investing behind our growth brands continues to serve us well. In spirits, we continue to see strong demand mainly driven by innovative flavors and the resurgence of mixed drinks. With our breadth of product offering and scale, we believe our portfolio is well positioned for growth ahead of the overall industry."
Net income on a comparable basis and diluted earnings per share on a comparable basis exclude restructuring and related charges and unusual costs. In order to give investors better insight on underlying business trends from continuing operations, the Company has included supplemental consolidated statements of income on a comparable basis. A table reconciling these measures and other related financial measures for the quarter to reported results is included in this release. For a detailed discussion of these items, please see the section "Items Affecting Comparability" following the financial statements.
The Company's measure of segment profitability excludes restructuring and related charges and unusual costs, which is consistent with the measure used by management to evaluate results.
Constellation Beers and Spirits Results
Net sales for third quarter 2004 grew 11 percent to reach $307 million. A 17 percent increase in beer sales and a four percent increase in branded spirits sales drove this growth, partially offset by a decline in bulk whisky and contract production sales. Imported beer growth was the result of continued consumer demand and strong wholesaler demand of Mexican beers prior to the Company's previously announced January 2004 price increase. The four percent increase in branded spirits sales was due to higher volume and a favorable mix toward higher priced spirits brands, including Black Velvet Canadian Whisky, Montezuma Tequila, Chi-Chi's prepared cocktails and the 99 Cordials range. The decline in bulk whisky and contract production sales was due to a large spot bulk whisky sale in the prior year period.
Operating income grew 21 percent to reach $72 million for the third quarter due primarily to higher sales.
Constellation Wines Results
Net sales for third quarter 2004 were $681 million compared to $462 million the prior year, an increase of $218 million, or 47 percent. This increase was driven primarily by the addition of sales from the Hardy acquisition. Pro forma net sales for third quarter 2004, which include $150 million of Hardy sales in the prior year period, increased 11 percent driven by increases in branded wines and the U.K. wholesale business, and a positive six percent impact from currency.
On a pro forma basis branded wines increased by four percent as a result of:
- 16 percent growth in wine in the United Kingdom, led by Australian brands Banrock Station, Hardy VR and Hardy Crest, and California brand Echo Falls, and
greater than 20 percent growth in premium wines in the United States from brands such as Ravenswood, Blackstone, Simi and Franciscan from California, and Alice White and Hardys Stamp from Australia.
Operating income for third quarter 2004 was $113 million, an increase of 49 percent. The increase was driven primarily by the additional sales from the Hardy acquisition.
Corporate Operations and Other Results
Corporate expenses increased 53 percent to $11 million. The increase was due primarily to an increase in general corporate expenses to support the Company's growth.
The following statements are management's current diluted earnings per share expectations both on a reported basis and comparable basis for the fourth quarter ending February 29, 2004 and fiscal year ending February 29, 2004:
- Diluted earnings per share on a reported basis for fourth quarter 2004 are expected to be within a range of $0.48 to $0.53 versus $0.56 for fourth quarter 2003.
Diluted earnings per share on a reported basis for fiscal 2004 are expected to be within a range of $1.99 to $2.04 versus $2.19 for fiscal 2003.
Diluted earnings per share on a comparable basis for fourth quarter 2004 are expected to be within a range of $0.51 to $0.56 versus $0.44 for fourth quarter 2003.
Diluted earnings per share on a comparable basis for fiscal 2004 are expected to be within a range of $2.45 to $2.50 versus $2.07 for fiscal 2003.
A reconciliation of reported estimates to comparable estimates is included in this media release.
Constellation Brands, Inc. is a leading international producer and marketer of beverage alcohol brands with a broad portfolio across the wine, spirits and imported beer categories. Well-known brands in Constellation's portfolio include: Corona Extra, Pacifico, St. Pauli Girl, Black Velvet, Fleischmann's, Mr. Boston, Estancia, Simi, Ravenswood, Blackstone, Banrock Station, Hardys, Nobilo, Alice White, Vendange, Almaden, Arbor Mist, Stowells and Blackthorn.
The statements made under the heading Outlook (collectively, the "Outlook"), as well as all other statements set forth in this press release which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the forward-looking statements.
During the quarter, Constellation may reiterate the estimates set forth above under the heading Outlook. Prior to the start of the Company's quiet period, beginning February 15, 2004, the public can continue to rely on the Outlook as still being Constellation's current expectations on the matters covered, unless Constellation publishes a notice stating otherwise.
Beginning February 15, 2004, Constellation will observe a "quiet period" during which the Outlook no longer constitutes the Company's current expectations. During the quiet period, the Outlook should be considered to be historical, speaking as of prior to the quiet period only, and not subject to update by the Company.
The Company's forward-looking statements 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 or financing that may be completed after the date of this release. Any projections of future results of operations, and in particular, (i) the Company's estimated diluted earnings per share on a reported basis for fourth quarter 2004 and fiscal 2004, and (ii) the Company's estimated diluted earnings per share on a comparable basis for fourth quarter 2004 and fiscal 2004, 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 forward-looking statements of the Company contained in this press release are also subject to the following risks and uncertainties: the on-going assimilation of the Hardy business; final management determinations and independent appraisals vary materially from current management estimates and preliminary independent appraisals of the fair value of the assets acquired and the liabilities assumed in the Hardy acquisition; the Company achieving certain sales projections and meeting certain cost targets; wholesalers and retailers may give higher priority to products of the Company's competitors; 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 higher than expected selling, general and administrative expenses; a general decline in alcohol consumption; increases in excise and other taxes on beverage alcohol products; and changes in foreign exchange rates. For additional information about risks and uncertainties that could adversely affect the Company's forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended February 28, 2003.
CONFERENCE CALL DETAILS
A conference call to discuss the quarterly results will be hosted by Chairman & CEO Richard Sands and Executive Vice President and Chief Financial Officer Tom Summer on Tuesday, January 6, 2004 at 5:00 p.m. (Eastern). The conference call can be accessed by dialing 412-858-4600 beginning 10 minutes prior to the start of the call. A live listen-only web cast of the conference call, together with a copy of this press release (including the attachments) is available on the Internet at Constellation's website: www.cbrands.com under "Investors."Items Affecting Comparability
Inventory step-up -- The Hardy acquisition resulted in an allocation of purchase price in excess of book value to certain inventory on hand at the date of purchase. This allocation of purchase price in excess of book value is referred to as inventory step-up. The inventory step-up represents an assumed manufacturing profit attributable to Hardy pre-acquisition. For inventory produced and sold after the acquisition date, the related manufacturer's profit will accrue to the Company. The Company expects flow through of inventory step-up to have an impact of approximately $0.10 per share for the current fiscal year.
Financing costs -- In connection with the Hardy acquisition, the Company recorded amortization expense for deferred financing costs associated with non-continuing financing, primarily related to the bridge loan agreement. The Company expects this charge to be approximately $0.07 per share for the current fiscal year.
Restructuring charges -- Restructuring charges resulted from the realignment of business operations in the Company's wine division, as previously announced in the fourth quarter of last fiscal year. The Company expects to incur charges of approximately $0.04 per share for the current fiscal year.
Imputed interest charge -- In connection with the Hardy acquisition and in accordance with purchase accounting, the Company was required to take a one-time imputed interest charge for the time period between when the Company obtained control of Hardy and the date it paid Hardy shareholders. The Company expects this charge to be approximately $0.01 per share for the current fiscal year.
Gain on change in fair value of derivative instruments -- In connection with the Hardy acquisition, the Company entered into derivative instruments to cap the cost of the acquisition in U.S. dollars. The Company recorded a gain in the first quarter, which represented the net change in value of the derivative instruments from the beginning of the first quarter until the date Hardy shareholders were paid. The Company expects this gain to be approximately $0.01 per share for the current fiscal year.
Exiting U.S. commodity concentrate product line -- The Company has made a decision to exit the commodity concentrate product line -- located in Madera, California.
The commodity concentrate product line is facing declining sales and profits and is not part of the Company's core business, beverage alcohol. The Company will continue to produce and sell value-added, proprietary products such as MegaColors. The Company expects this charge to be approximately $0.25 per share for the current fiscal year, of which $0.10 will be charged to cost of product sold and $0.15 will be recorded as restructuring charges. The Company expects the restructuring project to improve overall profitability and asset utilization resulting in increased return on invested capital, and is cash flow positive. More than half the charges are non-cash charges.
Media Relations - Philippa Dworkin
Investor Relations - Mark Maring
Both of Constellation Brands, Inc.