-
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.
Outlook
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 |
|
FY15
Estimate |
FY14
Actual |
FY15
Estimate |
FY14
Actual |
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.
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 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.
CONTACTS
Media
Cheryl Gossin: 585-678-7191
Amy Martin: 585-678-7141
Investor
Relations
Patty Yahn-Urlaub: 585-678-7483
Bob Czudak: 585-678-7170
Q2 FY15 Earnings Release Financial
Statements
This
announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Constellation Brands Inc via Globenewswire
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