-
Agrees to acquire glass
plant and associated warehouse, land and rail infrastructure in
Nava, Mexico from Anheuser-Busch InBev for approximately $300
million pending U.S. Department of Justice and Mexican regulatory
approvals
-
Agrees to enter into 50-50
joint venture with Owens-Illinois to own and operate new glass
plant and to use O-I as a secondary glass supplier
-
Enters into long-term
glass supply agreement with Vitro
-
Begins additional five
million hectoliter production capacity expansion at Nava Brewery in
Mexico
-
Updates future beer
segment volume growth, capital expenditure investments and
operating margin, as well as consolidated free cash flow
targets
VICTOR, N.Y., OCT. 2,
2014 - Constellation Brands, Inc. (NYSE: STZ and STZ.B), a
leading beverage alcohol company, announced today a multi-faceted
approach to glass sourcing for the company's beer business that
includes the following components:
- Constellation and Anheuser-Busch InBev SA/NV
(ABI) have submitted to the U.S. Department of Justice, a proposal
for Constellation to acquire ABI's state-of-the-art glass
production plant that is located adjacent to the company's brewery
in Nava, Mexico for approximately $300 million. This transaction
also includes the purchase of a high-density warehouse, land and
rail infrastructure and, along with customary closing conditions,
is subject to U.S. Department of Justice and Mexican regulatory
approvals, both of which are expected to be received before the end
of calendar year 2014. The glass plant currently has one
operational glass furnace and plans are in place to scale it to
four furnaces. When fully operational with four furnaces, this
facility is expected to supply more than 50% of the glass needs for
Constellation's U.S. beer business. Constellation currently plans
to make capital investments of approximately $175 - $225 million to
enhance site infrastructure related to rail and warehouse expansion
at the newly acquired site.
- Constellation has also agreed to enter into a
50-50 joint venture with Owens-Illinois (O-I) to own and operate
the glass container production plant to be purchased from ABI. O-I
will contribute approximately $100 million for its 50% share of the
joint venture, which does not include the warehouse, land and rail
infrastructure, as these assets will be held by Constellation
outside of the joint venture.
The joint venture will provide bottles exclusively for
Constellation's adjacent Nava Brewery. O-I will have primary
responsibility for plant operations including purchasing, technical
services and the plant expansion. Plans are in place to expand the
capacity of the plant from one furnace to four furnaces over the
next four years at a cost of approximately $300 - $400 million. The
expansion costs are expected to be shared equally by Constellation
and O-I.
The joint venture management team will report to the JV's board of
directors, which will be comprised of an equal number of management
team members from Constellation and O-I. The approximately 260
employees currently working at the glass plant will continue to
work at that location. Once the glass plant is expanded to four
furnaces, the number of employees working at the plant is estimated
to reach approximately 800. It is expected that the joint venture
will become operational before year end calendar 2014 at which
point the financial results of the joint venture will be
consolidated by Constellation. At that time, O-I also expects to
become a secondary glass supplier outside of the joint venture
arrangement.
- Constellation previously announced that it had
entered into a long-term supply agreement with Vitro (S.A.B. de
C.V.). Under this agreement, Vitro is expected to supply 25% - 30%
of the company's beer glass requirements during a seven year time
period beginning Oct. 1, 2014.
Due to the transitional nature of these new
sourcing arrangements, Constellation's beer business expects to
continue to purchase glass supply for production at the Nava
Brewery under the existing Transition Services Agreement with ABI
through mid-year calendar 2015. Constellation will also continue to
receive finished product under its Interim Supply Agreement with
ABI until the expansion of the Nava Brewery to 20 million
hectoliters is completed in calendar 2016.
In addition to the company's glass sourcing
activities, Constellation has started an additional five million
hectoliter expansion at the Nava Brewery in Mexico that will extend
production capacity to 25 million hectoliters when completed. The
estimated cost of the expansion from 20 million to 25 million
hectoliters is $450 - $550 million and is expected to be completed
by the end of calendar year 2017.
"We are pleased that we have been able to finalize
our long-term glass strategy under favorable terms with key
industry players," said Rob Sands, president and chief executive
officer of Constellation Brands. "We believe this provides the best
outcome in terms of quality, flexibility, cost-effectiveness and
control for this critical area of our beer production. We look
forward to working with our supply partner, Owens-Illinois, who has
more than 100 years of experience in producing glass containers. As
the world's leading glass producer, O-I is known for high quality
standards, has built and expanded dozens of plants, and
participates in joint ventures in several different countries
throughout the world." Sands continued, "We are also pleased with
the outcome of our beer glass supply arrangement with Vitro, which
provides an optimal sourcing option and enables us to partner with
a leader in the beer glass supply industry."
"Since completing the beer business acquisition in
June 2013, our beer business has seen exceptional portfolio
momentum, significantly outperforming the U.S. beer market as well
as our original sales volume and depletion expectations," said Bob
Ryder, chief financial officer of Constellation Brands. "This
excellent sales momentum, coupled with strong marketing and brand
building, is expected to drive sales trends that will outpace the
industry in the medium-term. Our additional investments in
production capacity are designed to ensure that we are
well-positioned to capture the continued momentum and growth
opportunities we see in the marketplace for our portfolio well into
the future."
Given these collective activities the company is
targeting the following:
Average annual beer volume growth
assumption |
FY 2016 - FY 2018: Mid-single digit |
Beer segment operating margin
estimate |
FY 2018: Mid-30% range |
Consolidated free cash flow
generation (1) |
FY 2018: > $1 billion |
Debt-to-comparable basis EBITDA
ratio |
FY 2016: Below 4.0X |
(1) Free Cash
Flow = Net cash provided by operating activities less purchases of
property, plant and equipment
Constellation Brands Beer
Segment
Beer Project Capital Expenditures |
(in millions) |
FY 2014 |
|
FY 2015 |
|
FY 2016 - 2018
(2) |
|
Total |
Nava Brewery (1)
(Initial investment from 10M - 20M HL) |
$125 |
|
$450 - $500 |
|
$425 - $475 |
|
$1,000 - $1,100 |
Nava Brewery
(Expansion from 20M - 25M HL) |
|
|
$50 |
|
$400 - $500 |
|
$450 - $550 |
Nava Glass Plant - Warehouse and
Rail
(Investments outside of the Glass JV) |
|
|
$75 |
|
$100 - $150 |
|
$175 - $225 |
Glass Plant JV With
O-I
(Furnace expansion) |
|
|
$25 |
|
$275 - $375 |
|
$300 - $400 |
Total Beer Project Capital
Expenditures |
$125 |
|
$600 - $650 |
|
$1,200 - $1,500 |
|
$1,925 - $2,275 |
Contribution from O-I for Glass JV (3) |
|
|
($10) |
|
($140 - $190) |
|
($150 -
$200) |
(1) The Nava
Brewery expansion from 10M - 20M HL is expected to be completed in
FY 2017
(2) The
significant majority of capex investment for FY 2016 - 2018 is
expected to occur in FY 2016 and FY 2017
(3) Some
rounding for presentation purposes
Conference Call
The company's glass sourcing strategy, incremental
brewery expansion and related outlook will be discussed in a
conference call 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 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.
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
This news release contains forward-looking
statements. All statements other than statements of historical fact
are forward-looking statements. The word "expect" and similar
expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such
identifying words. These statements may relate to business
strategy, future operations, prospects, plans and objectives of
management, as well as information concerning expected actions of
third parties. All forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially
from those set forth in, or implied by, such forward-looking
statements.
During the current quarter, Constellation Brands
may reiterate the forward-looking statements. Prior to the start of
the company's quiet period, which will begin at the close of
business on Nov. 28, 2014, the public can continue to rely on the
forward-looking statements 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 forward-looking statements 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 forward-looking statements are based on
management's current expectations and should not be construed in
any manner as a guarantee that such results will in fact occur or
will occur on the timetable contemplated hereby. The transaction
between Constellation Brands and ABI regarding the purchase of the
glass plant and associated warehouse, land and rail infrastructure
and the transactions between Constellation Brands and O-I regarding
formation of the joint venture and additional glass supply
arrangements are subject to the satisfaction of certain closing
conditions. There can be no assurance that any of these
transactions will occur or will occur on the timetables
contemplated hereby.
In addition to the risks and uncertainties of
ordinary business operations, the forward-looking statements of
Constellation Brands contained in this news release are subject to
a number of risks and uncertainties, including completion of the
announced transaction with ABI on the expected terms, timetable and
costs; completion of the formation of a joint venture with O-I on
the expected terms, timetable and costs; completion of a secondary
glass supply arrangement with O-I on the expected terms; receipt of
all required regulatory approvals by the expected dates and on the
expected terms; completion of the glass plant expansion and brewery
expansions by the expected completion dates and on the expected
terms and costs; the accuracy of all projections, including sales
trends, glass supply sources, estimates of capital expenditure
investments, glass plant supply output, and size of workforce at
the glass plant location; ability to achieve targeted volume
growth, operating margin, free cash flow generation, and debt
leverage ratio may all vary due to different financial results from
those anticipated and the timeframe in which achieved will depend
on actual financial performance; and other factors and
uncertainties disclosed from time-to-time in Constellation Brands,
Inc.'s filings with the Securities and Exchange Commission,
including its Annual Report on Form 10-K for the fiscal year ended
February 28, 2014, which could cause 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
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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