Constellation Brands Reports Q2 Fiscal 2011 Results
VICTOR, NY -- (MARKET WIRE) -- 10/06/10 -- Constellation Brands, Inc. (NYSE: STZ) (ASX: CBR), the world's leading wine company, reported today its second quarter fiscal 2011 results.
-- Achieves comparable basis diluted EPS of $0.52 and reported basis diluted EPS of $0.43 -- Solid underlying organic performance driven by execution of U.S. go-to-market strategy -- Strong free cash flow results drive upward revision to annual guidance; new target range set at record $375-$425 million -- Utilizes free cash flow to further reduce debt -- Reaffirms fiscal 2011 comparable basis diluted EPS guidance; updates reported basis diluted EPS guidance
Second Quarter 2011 Financial Highlights*
(in millions, except per share data)
Comparable % Change Reported % Change
---------- ---------- ---------- ----------
Consolidated net sales $ 863 -2% $ 863 -2%
Operating income $ 151 -11% $ 133 -5%
Operating margin 17.4% -190 bps 15.4% -60 bps
Equity in earnings of
equity method investees** $ 67 -9% $ 66 -9%
Earnings before interest
and taxes (EBIT) $ 217 -10% NA NA
Net income $ 109 -9% $ 91 -8%
Diluted earnings per share $ 0.52 -4% $ 0.43 -4%
"Our second quarter results demonstrate that we are gaining momentum from the successful execution of our U.S. distributor strategy," said Rob Sands, president and chief executive officer, Constellation Brands. "During the quarter, we experienced improving U.S. wine depletion trends and retail execution despite an uncertain consumer and competitive environment. Our brand investments and promotional activities are helping to fuel growth in the marketplace for our core brands including Robert Mondavi, Kim Crawford, Clos du Bois and Blackstone, just to name a few."
Second Quarter 2011 Net Sales Highlights*
(in millions)
Reported Organic
------------------------- -------------------------
Constant Constant
Net Currency Net Currency
Sales % Change Change Sales % Change Change
-------- ------- ------- -------- ------- -------
Consolidated $ 863 -2% -2% $ 863 3% 2%
Wine $ 808 -1% -1% $ 808 4% 4%
North America Wine $ 601 5% 4% $ 601 5% 4%
Australia and Europe
Wine $ 207 -14% -12% $ 207 1% 4%
Spirits $ 55 -15% -15% $ 55 -15% -15%
*Definitions of reported, comparable, organic and constant currency, 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
Net Sales Commentary
Reported consolidated net sales decreased two percent due primarily to the divestiture of the U.K. cider business. Organic net sales on a constant currency basis increased two percent.
Consolidated wine organic net sales on a constant currency basis increased four percent. North America wine net sales on a constant currency basis increased four percent primarily reflecting favorable product mix and an increase in volume, partially offset by higher promotion costs. The increase in shipments resulted in higher distributor inventory levels. "However, Constellation's underlying retail takeaway as measured by SymphonyIRI was strong during the quarter with value growth of seven percent versus five percent for the industry in the 12-week period ending Sept. 5, 2010," said Sands.
Australia and Europe wine net sales on an organic constant currency basis increased four percent versus the prior year second quarter.
Total spirits organic net sales decreased 15 percent for the quarter. "Our second quarter spirits net sales results do not reflect the robust underlying market performance for SVEDKA Vodka with depletions growing double digits through the first half of the year," said Sands. "Last year's second quarter SVEDKA net sales increased approximately 90 percent driven by U.S. distributor transition activities, which created a difficult comparison."
Operating Income and Net Income Commentary
The consolidated comparable basis operating income decline was primarily driven by an increase in corporate expense and a decrease in the Australia and Europe wine segment due in part to the divestiture of the cider business.
Constellation's equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $65 million, a decrease of 10 percent from the prior year second quarter. For second quarter 2011, Crown generated net sales of $679 million, a decrease of 2 percent, and operating income of $131 million, a decrease of 9 percent. Net sales for Crown were impacted primarily by lower volume, higher promotions and unfavorable mix. Operating income for Crown decreased primarily due to promotional investments, a contractual product cost increase and lower volume.
"Throughout the summer selling season, Crown's sales volumes lagged depletions due to temporary wholesaler inventory reductions resulting from disruption related to a brewery strike in Mexico and Hurricane Alex," said Sands. "However, consumer demand for Crown's products remained solid for the second consecutive quarter driven by the 'Win the Beach' and World Cup Soccer promotional initiatives. Crown is targeting to build on this consumer momentum with new advertising programs during the NFL season."
For second quarter 2011, pre-tax restructuring charges and unusual items totaled $17 million compared to $29 million for the prior year second quarter.
Interest expense totaled $50 million, a decrease of 26 percent. The decrease was primarily due to lower average interest rates and borrowings during the quarter.
The comparable basis effective tax rate for the quarter was 35 percent compared to 31 percent for the prior year second quarter. The company continues to anticipate a full year comparable basis effective tax rate of 35 percent.
Common Stock Repurchase
On April 16, 2010, the company entered into a $300 million accelerated stock buyback (ASB) transaction. During the first quarter, the company received 13.8 million shares of Class A Common Stock, representing the minimum number of shares that will be received under the ASB transaction. The company did not receive any additional shares in connection with this transaction during the second quarter. The final number of shares to be received under the ASB transaction will be determined at the close of the transaction, which is scheduled to end no later than Nov. 24, 2010.
"The company has increased its fiscal 2011 free cash flow target to a record level in the range of $375-$425 million," said Bob Ryder, chief financial officer, Constellation Brands. "Our strong free cash flow generation for the first half of fiscal 2011 reflects our increasing focus on improving the conversion of EBITDA to free cash flow. Our plan for the remainder of the year is to utilize our free cash flow to pay down debt."
Summary
"While some uncertainty remains in global markets, we are focused on building a stronger business for the future," said Sands. "We have demonstrated this during the second quarter by generating strong free cash flow, paying down debt and driving profitable organic growth."
Outlook
The table below sets forth management's current diluted EPS expectations for fiscal year 2011 compared to fiscal year 2010 actual results, both on a reported basis and a comparable basis.
Constellation Brands Fiscal Year 2011
Diluted Earnings Per Share Outlook
Reported Basis Comparable Basis
-------------------------- --------------------------
FY11 Estimate FY10 Actual FY11 Estimate FY10 Actual
------------- ----------- ------------- -----------
Fiscal Year Ending
Feb. 28 $1.36 - $1.51 $0.45 $1.63 - $1.78 $1.69
Full-year fiscal 2011 guidance includes the following current assumptions:
-- Interest expense: approximately $200 - $210 million -- Tax rate: approximately 40 percent on a reported basis, as compared to 35 percent on a comparable basis, primarily due to a provision of five percentage points associated with the recognition in first quarter 2011 of a valuation allowance against deferred tax assets in the U.K. -- Weighted average diluted shares outstanding: approximately 213 million -- Free cash flow: $375-$425 million
Conference Call
A conference call to discuss second quarter fiscal 2011 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. Oct. 6, 2010 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 in the call will be available on the Internet at Constellation's Web site: 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 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 and free cash flow.
Tables reconciling non-GAAP measures, together with definitions of these measures and the reasons management uses these measures, are included in this news release.
About Constellation Brands
Constellation Brands is the world's leading wine company that achieves success through an unmatched knowledge of wine consumers, storied brands that suit varied lives and tastes, and talented employees worldwide. With a broad portfolio of widely admired premium products across the wine, beer and spirits categories, Constellation's brand portfolio includes Robert Mondavi, Hardys, Clos du Bois, Blackstone, Arbor Mist, Estancia, Ravenswood, Jackson-Triggs, Kim Crawford, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka.
Constellation Brands (NYSE: STZ) and (NYSE: STZ.B) (ASX: CBR) is an S&P 500 Index and Fortune 1000® company with more than 100 brands in our portfolio, sales in about 150 countries and operations at more than 40 facilities. The company believes that industry leadership involves a commitment to our brands, to the trade, to the land, to investors and to different 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 about Constellation, visit the company's web site at www.cbrands.com.
Forward-Looking Statements
The statements made under the heading Outlook, and all statements other than statements of historical facts set forth in this news release regarding Constellation's 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 may reiterate the Projections. Prior to the start of the company's quiet period, which will begin at the close of business on Nov. 30, 2010, the public can continue to rely on the Projections as still being Constellation's current expectations on the matters covered, unless Constellation publishes a notice stating otherwise. During Constellation's "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:
-- completion of various portfolio actions; implementation of consolidation activities and actual U.S. distributor transition experience; -- fluctuations in the volume weighted average price of the Company's Class A Common Stock during the remainder of the calculation period under the ASB transaction; -- actual date of the termination of the calculation period under the ASB transaction; -- final number of shares of Class A Common Stock received as a result of the ASB transaction; -- 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; -- accuracy of the bases for forecasts relating to joint ventures and associated costs, losses and capital investment requirements; -- restructuring charges, acquisition-related integration costs and other one-time costs associated with integration and 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 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 or effective tax rate; -- changes in interest rates and the inherent unpredictability of currency fluctuations, commodity prices and raw material costs; 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, 2010, which could cause actual future performance to differ from current expectations.
Constellation Brands, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
August 31, February 28,
2010 2010
------------ ------------
Assets
Current Assets:
Cash and cash investments $ 13.9 $ 43.5
Accounts receivable, net 720.7 514.7
Inventories 1,722.4 1,879.9
Prepaid expenses and other 103.0 151.0
------------ ------------
Total current assets 2,560.0 2,589.1
Property, plant and equipment, net 1,529.0 1,567.2
Goodwill 2,566.1 2,570.6
Intangible assets, net 920.1 925.0
Other assets, net 301.9 442.4
------------ ------------
Total assets $ 7,877.1 $ 8,094.3
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable to banks $ 347.0 $ 371.2
Current maturities of long-term debt 308.7 187.2
Accounts payable 253.5 268.8
Accrued excise taxes 57.7 43.8
Other accrued expenses and liabilities 482.8 501.6
------------ ------------
Total current liabilities 1,449.7 1,372.6
Long-term debt, less current maturities 3,127.7 3,277.1
Deferred income taxes 544.0 536.2
Other liabilities 325.8 332.1
------------ ------------
Total liabilities 5,447.2 5,518.0
Total stockholders' equity 2,429.9 2,576.3
------------ ------------
Total liabilities and stockholders' equity $ 7,877.1 $ 8,094.3
============ ============
Constellation Brands, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Three Months Ended Six Months Ended
---------------------- ----------------------
August 31, August 31, August 31, August 31,
2010 2009 2010 2009
---------- ---------- ---------- ----------
Sales $ 1,056.9 $ 1,090.7 $ 2,033.1 $ 2,094.5
Excise taxes (194.1) (213.9) (382.8) (426.1)
---------- ---------- ---------- ----------
Net sales 862.8 876.8 1,650.3 1,668.4
Cost of product sold (548.6) (567.2) (1,066.1) (1,090.1)
---------- ---------- ---------- ----------
Gross profit 314.2 309.6 584.2 578.3
Selling, general and
administrative expenses (167.3) (166.3) (336.1) (331.4)
Restructuring charges (13.7) (3.2) (18.6) (22.1)
---------- ---------- ---------- ----------
Operating income 133.2 140.1 229.5 224.8
Equity in earnings of
equity method investees 66.4 73.2 120.9 136.0
Interest expense, net (50.3) (68.1) (98.8) (136.5)
---------- ---------- ---------- ----------
Income before income
taxes 149.3 145.2 251.6 224.3
Provision for income taxes (58.0) (45.5) (111.2) (118.1)
---------- ---------- ---------- ----------
Net income $ 91.3 $ 99.7 $ 140.4 $ 106.2
========== ========== ========== ==========
Earnings Per Common Share:
Basic - Class A Common
Stock $ 0.44 $ 0.46 $ 0.67 $ 0.49
Basic - Class B
Convertible Common
Stock $ 0.40 $ 0.42 $ 0.61 $ 0.44
Diluted - Class A Common
Stock $ 0.43 $ 0.45 $ 0.65 $ 0.48
Diluted - Class B
Convertible Common
Stock $ 0.40 $ 0.41 $ 0.60 $ 0.44
Weighted Average Common
Shares Outstanding:
Basic - Class A Common
Stock 185.455 195.910 189.084 195.571
Basic - Class B
Convertible Common
Stock 23.712 23.736 23.719 23.740
Diluted - Class A Common
Stock 211.149 220.714 215.136 220.274
Diluted - Class B
Convertible Common
Stock 23.712 23.736 23.719 23.740
Constellation Brands, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Six Months Ended
----------------------
August 31, August 31,
2010 2009
---------- ----------
Cash Flows From Operating Activities
Net income $ 140.4 $ 106.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 61.0 77.1
Deferred tax provision (benefit) 50.6 (28.7)
Equity in earnings of equity method investees,
net of distributed earnings 36.5 (12.3)
Stock-based compensation expense 25.7 25.4
Amortization of intangible and other assets 7.3 6.0
Loss (gain) on disposal or impairment of
long-lived assets, net 4.8 (1.4)
Loss on business sold - 0.8
Change in operating assets and liabilities, net
of effects from purchases and sales of
businesses:
Accounts receivable, net (204.5) (204.5)
Inventories 157.2 91.3
Prepaid expenses and other current assets 5.3 1.0
Accounts payable (10.7) (11.5)
Accrued excise taxes 13.2 17.6
Other accrued expenses and liabilities 39.7 8.8
Other, net (20.8) 21.6
---------- ----------
Total adjustments 165.3 (8.8)
---------- ----------
Net cash provided by operating activities 305.7 97.4
---------- ----------
Cash Flows From Investing Activities
Purchases of property, plant and equipment (43.2) (65.1)
Investment in equity method investee (29.7) (0.5)
(Repayments related to) proceeds from sale of
business (1.6) 276.4
Proceeds from note receivable 60.0 -
Proceeds from sales of assets 3.1 14.5
Other investing activities 0.5 1.2
---------- ----------
Net cash (used in) provided by investing
activities (10.9) 226.5
---------- ----------
Cash Flows From Financing Activities
Purchases of treasury stock (300.0) -
Principal payments of long-term debt (24.5) (271.4)
Net repayment of notes payable (24.1) (60.2)
Payment of financing costs of long-term debt (0.2) -
Exercise of employee stock options 18.0 9.0
Excess tax benefits from stock-based payment
awards 4.7 2.2
Proceeds from employee stock purchases 2.1 2.3
---------- ----------
Net cash used in financing activities (324.0) (318.1)
---------- ----------
Effect of exchange rate changes on cash and cash
investments (0.4) 0.8
---------- ----------
Net (decrease) increase in cash and cash
investments (29.6) 6.6
Cash and cash investments, beginning of period 43.5 13.1
---------- ----------
Cash and cash investments, end of period $ 13.9 $ 19.7
========== ==========
Constellation Brands, Inc. and Subsidiaries
SUMMARIZED SEGMENT AND EQUITY EARNINGS INFORMATION
(in millions)
Three Months Ended
----------------------
August 31, August 31, Percent
2010 2009 Change
---------- ----------
Constellation Wines North America (1)
Wine net sales $ 600.6 $ 570.2 5%
Spirits net sales 55.0 64.7 (15%)
---------- ----------
Segment net sales $ 655.6 $ 634.9 3%
Segment operating income $ 181.2 $ 183.8 (1%)
% Net sales 27.6% 28.9%
Equity in losses of equity method
investees $ (0.3) $ (0.1) NM
Constellation Wines Australia and
Europe (1)
Wine net sales $ 207.2 $ 241.9 (14%)
---------- ----------
Segment net sales $ 207.2 $ 241.9 (14%)
Segment operating (loss) income $ (3.2) $ 4.1 NM
% Net sales (1.5%) 1.7%
Equity in earnings of equity
method investees $ 1.5 $ 1.1 36%
Corporate Operations and Other segment
operating loss $ (27.5) $ (18.9) 46%
Equity in earnings of Crown Imports
(2) $ 65.3 $ 72.2 (10%)
Reportable Segment Operating Income
(A) $ 150.5 $ 169.0
Restructuring Charges and Unusual
Items (17.3) (28.9)
---------- ----------
Consolidated Operating Income (GAAP) $ 133.2 $ 140.1
========== ==========
Reportable Segment Equity in Earnings
of Equity Method Investees (B) $ 66.5 $ 73.2
Restructuring Charges and Unusual
Items (0.1) -
---------- ----------
Consolidated Equity in Earnings of
Equity Method Investees (GAAP) $ 66.4 $ 73.2
========== ==========
Consolidated Earnings Before Interest
and Taxes (Non-GAAP) (A+B) $ 217.0 $ 242.2
========== ==========
Six Months Ended
----------------------
August 31, August 31, Percent
2010 2009 Change
---------- ----------
Constellation Wines North America (1)
Wine net sales $ 1,132.3 $ 1,094.4 3%
Spirits net sales 113.2 124.8 (9%)
---------- ----------
Segment net sales $ 1,245.5 $ 1,219.2 2%
Segment operating income $ 313.7 $ 331.3 (5%)
% Net sales 25.2% 27.2%
Equity in losses of equity method
investees $ (0.2) $ (1.3) NM
Constellation Wines Australia and
Europe (1)
Wine net sales $ 404.8 $ 449.2 (10%)
---------- ----------
Segment net sales $ 404.8 $ 449.2 (10%)
Segment operating (loss) income $ (6.0) $ 4.2 NM
% Net sales (1.5%) 0.9%
Equity in earnings of equity
method investees $ 2.1 $ 2.2 (5%)
Corporate Operations and Other segment
operating loss $ (54.0) $ (41.6) 30%
Equity in earnings of Crown Imports
(2) $ 119.6 $ 135.1 (11%)
Reportable Segment Operating Income
(A) $ 253.7 $ 293.9
Restructuring Charges and Unusual
Items (24.2) (69.1)
---------- ----------
Consolidated Operating Income (GAAP) $ 229.5 $ 224.8
========== ==========
Reportable Segment Equity in Earnings
of Equity Method Investees (B) $ 121.5 $ 136.0
Restructuring Charges and Unusual
Items (0.6) -
---------- ----------
Consolidated Equity in Earnings of
Equity Method Investees (GAAP) $ 120.9 $ 136.0
========== ==========
Consolidated Earnings Before Interest
and Taxes (Non-GAAP) (A+B) $ 375.2 $ 429.9
========== ==========
NM Not Meaningful
(1) In connection with the Company's change in its internal management
structure for its U.K. and Australia businesses and the revised
strategy within these markets, the Company changed its internal
management financial reporting on May 1, 2010, to consist of five
operating segments: Constellation Wines North America, Constellation
Wines Australia and Europe, Constellation Wines New Zealand, Crown
Imports and Corporate Operations and Other. For reporting purposes, the
Constellation Wines New Zealand operating segment is aggregated with
the Constellation Wines North America operating segment due to, among
other factors, the vast majority of the wine produced by the
Constellation Wines New Zealand operating segment is sold in the U.S.
and Canada. Prior period results have been restated to conform with
the new segment presentation.
(2) Crown Imports Joint Venture Summarized Financial Information
Three Months Ended
----------------------
August 31, August 31, Percent
2010 2009 Change
---------- ----------
Net sales $ 679.4 $ 696.4 (2%)
Operating income $ 131.2 $ 144.7 (9%)
% Net sales 19.3% 20.8%
Six Months Ended
----------------------
August 31, August 31, Percent
2010 2009 Change
---------- ----------
Net sales $ 1,300.9 $ 1,335.5 (3%)
Operating income $ 240.1 $ 270.7 (11%)
% Net sales 18.5% 20.3%
Constellation Brands, Inc. and Subsidiaries
RECONCILIATION OF REPORTED, ORGANIC AND CONSTANT CURRENCY NET SALES
(in millions)
As the company sold certain spirits value brands and contract production
services on March 24, 2009, and sold its U.K. cider business on January 15,
2010, organic net sales for the respective periods are defined by the
company as reported net sales less net sales of certain spirits value
brands and contract production services and/or net sales of cider, as
appropriate. Organic net sales and percentage increase (decrease) in
constant currency net sales (which excludes the impact of year over year
currency exchange rate fluctuations) are provided because management uses
this information in monitoring and evaluating the underlying business
trends of the continuing operations of the company. In addition, the
company believes this information provides investors better insight on
underlying business trends and results in order to evaluate year over year
financial performance.
Three Months Ended Constant
------------------ Currency
August August Percent
31, 31, Percent Currency Change
2010 2009 Change Impact (1)
--------- --------
Consolidated Net Sales
Wine $ 807.8 $ 812.1 (1%) - (1%)
Spirits 55.0 64.7 (15%) - (15%)
--------- --------
Consolidated
reported net
sales 862.8 876.8 (2%) - (2%)
Less: Spirits net
sales (2) - -
Less: Cider net
sales (3) - (37.1)
--------- --------
Consolidated
organic net
sales $ 862.8 $ 839.7 3% - 2%
========= ========
Consolidated Wine Net
Sales
Wine $ 807.8 $ 812.1 (1%) - (1%)
Less: Cider net
sales (3) - (37.1)
--------- --------
Consolidated wine
organic net
sales $ 807.8 $ 775.0 4% - 4%
========= ========
Constellation Wines
North America Net Sales
Wine reported net
sales $ 600.6 $ 570.2 5% 1% 4%
========= ========
Spirits reported
net sales $ 55.0 $ 64.7 (15%) - (15%)
Less: Spirits net
sales (2) - -
--------- --------
Spirits organic
net sales $ 55.0 $ 64.7 (15%) - (15%)
========= ========
Constellation Wines
Australia and Europe
Net Sales
Wine reported net
sales $ 207.2 $ 241.9 (14%) (2%) (12%)
Less: Cider net
sales (3) - (37.1)
--------- --------
Wine organic net
sales $ 207.2 $ 204.8 1% (2%) 4%
========= ========
Six Months Ended Constant
------------------ Currency
August August Percent
31, 31, Percent Currency Change
2010 2009 Change Impact (1)
--------- --------
Consolidated Net Sales
Wine $ 1,537.1 $1,543.6 - 2% (3%)
Spirits 113.2 124.8 (9%) - (9%)
--------- --------
Consolidated
reported net
sales 1,650.3 1,668.4 (1%) 2% (3%)
Less: Spirits net
sales (2) - (14.8)
Less: Cider net
sales (3) - (64.8)
--------- --------
Consolidated
organic net
sales $ 1,650.3 $1,588.8 4% 2% 1%
========= ========
Consolidated Wine Net
Sales
Wine $ 1,537.1 $1,543.6 - 2% (3%)
Less: Cider net
sales (3) - (64.8)
--------- --------
Consolidated wine
organic net
sales $ 1,537.1 $1,478.8 4% 3% 1%
========= ========
Constellation Wines
North America Net Sales
Wine reported net
sales $ 1,132.3 $1,094.4 3% 2% 1%
========= ========
Spirits reported
net sales $ 113.2 $ 124.8 (9%) - (9%)
Less: Spirits net
sales (2) - (14.8)
--------- --------
Spirits organic
net sales $ 113.2 $ 110.0 3% - 3%
========= ========
Constellation Wines
Australia and Europe
Net Sales
Wine reported net
sales $ 404.8 $ 449.2 (10%) 3% (12%)
Less: Cider net
sales (3) - (64.8)
--------- --------
Wine organic net
sales $ 404.8 $ 384.4 5% 3% 2%
========= ========
(1) May not sum due to rounding as each item is computed independently.
(2) For the period March 1, 2009, through March 24, 2009, included in the
six months ended August 31, 2009.
(3) For the period June 1, 2009, through August 31, 2009, included in the
three months ended August 31, 2009, and the period March 1, 2009,
through August 31, 2009, included in the six months ended August 31,
2009.
Constellation Brands, Inc. and Subsidiaries
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
(in millions, except per share data)
Three Months Ended August 31, 2010
------------------------------------------------------
Strategic
Reported Business Comparable
Basis Inventory Realignment Basis
(GAAP) Step-up (2) Other (3) (Non-GAAP)
--------- --------- ----------- --------- ---------
Net Sales $ 862.8 $ 862.8
Cost of product
sold (548.6) 0.6 0.1 (547.9)
--------- --------- ----------- --------- ---------
Gross Profit 314.2 0.6 0.1 - 314.9
Selling, general
and
administrative
expenses ("SG&A") (167.3) 2.9 (164.4)
Restructuring
charges (13.7) 13.7 -
--------- --------- ----------- --------- ---------
Operating Income 133.2 0.6 16.7 - 150.5
Equity in
earnings of
equity method
investees 66.4 0.1 66.5
---------
EBIT 217.0
Interest
expense, net (50.3) (50.3)
--------- --------- ----------- --------- ---------
Income Before
Income Taxes 149.3 0.6 16.7 0.1 166.7
(Provision for)
benefit from
income taxes (58.0) (0.3) (1.3) 2.0 (57.6)
--------- --------- ----------- --------- ---------
Net Income $ 91.3 $ 0.3 $ 15.4 $ 2.1 $ 109.1
========= ========= =========== ========= =========
Diluted Earnings
Per Common Share $ 0.43 $ - $ 0.07 $ 0.01 $ 0.52
========= ========= =========== ========= =========
Weighted Average
Common Shares
Outstanding
- Diluted 211.149 211.149 211.149 211.149 211.149
========= ========= =========== ========= =========
Gross Margin 36.4% 36.5%
SG&A as a percent
of net sales 19.4% 19.1%
Operating Margin 15.4% 17.4%
Effective Tax Rate 38.8% 34.6%
Three Months Ended August 31, 2009
------------------------------------------------------
Strategic
Reported Business Comparable
Basis Inventory Realignment Basis
(GAAP) Step-up (2) Other (Non-GAAP)
--------- --------- ----------- --------- ---------
Net Sales $ 876.8 $ 876.8
Cost of product
sold (567.2) 2.5 13.0 (551.7)
--------- --------- ----------- --------- ---------
Gross Profit 309.6 2.5 13.0 - 325.1
Selling, general
and
administrative
expenses (166.3) 10.2 (156.1)
Restructuring
charges (3.2) 3.2 -
--------- --------- ----------- --------- ---------
Operating Income 140.1 2.5 26.4 - 169.0
Equity in
earnings of
equity method
investees 73.2 73.2
---------
EBIT 242.2
Interest
expense, net (68.1) (68.1)
--------- --------- ----------- --------- ---------
Income Before
Income Taxes 145.2 2.5 26.4 - 174.1
(Provision for)
benefit from
income taxes (45.5) (0.9) (7.7) - (54.1)
--------- --------- ----------- --------- ---------
Net Income $ 99.7 $ 1.6 $ 18.7 $ - $ 120.0
========= ========= =========== ========= =========
Diluted Earnings
Per Common Share $ 0.45 $ 0.01 $ 0.08 $ - $ 0.54
========= ========= =========== ========= =========
Weighted Average
Common Shares
Outstanding
- Diluted 220.714 220.714 220.714 220.714 220.714
========= ========= =========== ========= =========
Gross Margin 35.3% 37.1%
SG&A as a percent
of net sales 19.0% 17.8%
Operating Margin 16.0% 19.3%
Effective Tax Rate 31.3% 31.1%
Percent Percent
Change - Change -
Reported Comparable
Basis Basis
(GAAP) (Non-GAAP)
--------- ---------
Net Sales (2%) (2%)
Cost of product
sold (3%) (1%)
Gross Profit 1% (3%)
Selling, general
and
administrative
expenses ("SG&A") 1% 5%
Restructuring
charges NM N/A
Operating Income (5%) (11%)
Equity in
earnings of
equity method
investees (9%) (9%)
EBIT N/A (10%)
Interest
expense, net (26%) (26%)
Income Before
Income Taxes 3% (4%)
(Provision for)
benefit from
income taxes 27% 6%
Net Income (8%) (9%)
Diluted Earnings
Per Common Share (4%) (4%)
Constellation Brands, Inc. and Subsidiaries
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
(in millions, except per share data)
Six Months Ended August 31, 2010
------------------------------------------------------
Strategic
Reported Business Comparable
Basis Inventory Realignment Basis
(GAAP) Step-up (4) Other (5) (Non-GAAP)
--------- --------- ----------- --------- ---------
Net Sales $ 1,650.3 $ 1,650.3
Cost of product
sold (1,066.1) 1.6 1.1 (1,063.4)
--------- --------- ----------- --------- ---------
Gross Profit 584.2 1.6 1.1 - 586.9
Selling, general
and
administrative
expenses (336.1) 2.9 (333.2)
Restructuring
charges (18.6) 18.6 -
--------- --------- ----------- --------- ---------
Operating Income 229.5 1.6 22.6 - 253.7
Equity in
earnings of
equity method
investees 120.9 0.6 121.5
---------
EBIT 375.2
Interest
expense, net (98.8) (98.8)
--------- --------- ----------- --------- ---------
Income Before
Income Taxes 251.6 1.6 22.6 0.6 276.4
(Provision for)
benefit from
income taxes (111.2) (0.7) (2.6) 30.1 (84.4)
--------- --------- ----------- --------- ---------
Net Income $ 140.4 $ 0.9 $ 20.0 $ 30.7 $ 192.0
========= ========= =========== ========= =========
Diluted Earnings
Per Common Share $ 0.65 $ - $ 0.09 $ 0.14 $ 0.89
========= ========= =========== ========= =========
Weighted Average
Common Shares
Outstanding
- Diluted 215.136 215.136 215.136 215.136 215.136
========= ========= =========== ========= =========
Gross Margin 35.4% 35.6%
SG&A as a percent
of net sales 20.4% 20.2%
Operating Margin 13.9% 15.4%
Effective Tax Rate 44.2% 30.5%
Six Months Ended August 31, 2009
------------------------------------------------------
Strategic
Reported Business Comparable
Basis Inventory Realignment Basis
(GAAP) Step-up (4) Other (Non-GAAP)
--------- --------- ----------- --------- ---------
Net Sales $ 1,668.4 $ 1,668.4
Cost of product
sold (1,090.1) 5.2 17.8 (1,067.1)
--------- --------- ----------- --------- ---------
Gross Profit 578.3 5.2 17.8 - 601.3
Selling, general
and
administrative
expenses (331.4) 24.0 (307.4)
Restructuring
charges (22.1) 22.1 -
--------- --------- ----------- --------- ---------
Operating Income 224.8 5.2 63.9 - 293.9
Equity in
earnings of
equity method
investees 136.0 136.0
---------
EBIT 429.9
Interest
expense, net (136.5) (136.5)
--------- --------- ----------- --------- ---------
Income Before
Income Taxes 224.3 5.2 63.9 - 293.4
(Provision for)
benefit from
income taxes (118.1) (2.0) 19.4 - (100.7)
--------- --------- ----------- --------- ---------
Net Income $ 106.2 $ 3.2 $ 83.3 $ - $ 192.7
========= ========= =========== ========= =========
Diluted Earnings
Per Common Share $ 0.48 $ 0.01 $ 0.38 $ - $ 0.87
========= ========= =========== ========= =========
Weighted Average
Common Shares
Outstanding
- Diluted 220.274 220.274 220.274 220.274 220.274
========= ========= =========== ========= =========
Gross Margin 34.7% 36.0%
SG&A as a percent
of net sales 19.9% 18.4%
Operating Margin 13.5% 17.6%
Effective Tax Rate 52.7% 34.3%
Percent Percent
Change - Change -
Reported Comparable
Basis Basis
(GAAP) (Non-GAAP)
--------- ---------
Net Sales (1%) (1%)
Cost of product
sold (2%) -
Gross Profit 1% (2%)
Selling, general
and
administrative
expenses 1% 8%
Restructuring
charges (16%) N/A
Operating Income 2% (14%)
Equity in
earnings of
equity method
investees (11%) (11%)
EBIT N/A (13%)
Interest
expense, net (28%) (28%)
Income Before
Income Taxes 12% (6%)
(Provision for)
benefit from
income taxes (6%) (16%)
Net Income 32% -
Diluted Earnings
Per Common Share 35% 2%
Constellation Brands, Inc. and Subsidiaries
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES (continued)
NOTES
(1) The company reports its financial results in accordance with generally
accepted accounting principles in the U.S. ("GAAP"). However, non-GAAP
financial measures, as defined in the reconciliation tables above, are
provided because management uses this information in evaluating the
results of the continuing operations of the company and/or internal
goal setting. In addition, the company believes this information
provides investors better insight on underlying business trends and
results in order to evaluate year over year financial performance. See
the tables above for supplemental financial data and corresponding
reconciliations of these non-GAAP financial measures to GAAP financial
measures for the three months and six months ended August 31, 2010, and
August 31, 2009. Non-GAAP financial measures should be viewed in
addition to, and not as an alternative for, the company's reported
results prepared in accordance with GAAP. Please refer to the company's
Web site at http://www.cbrands.com/CBI/investors.htm for more detailed
description and further discussion of these non-GAAP financial
measures.
(2) For the three months ended August 31, 2010, strategic business
realignment items primarily include costs recognized by the company in
connection with the Global Initiative of $8.2 million, net of a tax
benefit of $1.1 million, and the Australian Initiative of $6.3 million,
net of a tax benefit of $0.0 million. For the three months ended
August 31, 2009, strategic business realignment items primarily include
costs recognized by the company in connection with the Global
Initiative of $12.5 million, net of a tax benefit of $6.3 million, and
the Fiscal 2007 Wine Plan of $4.7 million, net of a tax benefit of
$1.1 million.
(3) For the three months ended August 31, 2010, other consists primarily of
an additional valuation allowance against deferred tax assets in the
U.K. of $2.0 million.
(4) For the six months ended August 31, 2010, strategic business
realignment items primarily include costs recognized by the company in
connection with the Global Initiative of $13.7 million, net of a tax
benefit of $2.3 million, and the Australian Initiative of $6.3 million,
net of a tax benefit of $0.0 million. For the six months ended
August 31, 2009, strategic business realignment items primarily include
tax expense associated with the March 2009 divestiture of the value
spirits business of $37.5 million and costs recognized by the company
in connection with the Global Initiative of $33.6 million, net of a tax
benefit of $16.4 million.
(5) For the six months ended August 31, 2010, other consists primarily of a
valuation allowance against deferred tax assets in the U.K. of
$30.1 million.
DEFINITIONS
Global Initiative
The company's plan announced in April 2009 to simplify its business, increase efficiencies and reduce its cost structure on a global basis (the "Global Initiative").
Australian Initiative
The company's plan announced in August 2008 to sell certain assets and implement operational changes designed to improve the efficiencies and returns associated with its Australian business (the "Australian Initiative").
Fiscal 2008 Plan
The company's plan announced in November 2007 to streamline certain of its international operations, primarily in Australia; certain other restructuring charges incurred during the third quarter of fiscal 2008 in connection with the consolidation of certain spirits production processes in the U.S.; and its plan announced in January 2008 to streamline certain of its operations in the U.S., primarily in connection with the restructuring and integration of the operations of Beam Wine Estates, Inc. (collectively, the "Fiscal 2008 Plan").
Fiscal 2007 Wine Plan
The company's plan announced in August 2006 to invest in new distribution and bottling facilities in the U.K. and to streamline certain Australian wine operations (collectively, the "Fiscal 2007 Wine Plan").
Constellation Brands, Inc. and Subsidiaries
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES (continued)
GUIDANCE - DILUTED EARNINGS PER SHARE AND FREE CASH FLOW
(in millions, except per share data)
Range for the Year
Diluted Earnings Per Share Guidance Ending February 28, 2011
------------------------------------
Forecasted diluted earnings per share
- reported basis (GAAP) $ 1.36 $ 1.51
Strategic business realignment (1) 0.12 0.12
Other (2) 0.15 0.15
----------------- -----------------
Forecasted diluted earnings per share
- comparable basis (Non-GAAP) (3) $ 1.63 $ 1.78
================= =================
Actual for the
Year Ended
February 28, 2010
-----------------
Diluted earnings per share - reported basis (GAAP) $ 0.45
Inventory step-up 0.02
Strategic business realignment (1) 0.50
Other (2) 0.71
-----------------
Diluted earnings per share - comparable basis (Non-GAAP)
(3) $ 1.69
=================
(1) Includes $0.09, $0.03, $0.01 and ($0.01) diluted earnings per share for
the year ending February 28, 2011, associated with the Global
Initiative; the Australian Initiative; the Fiscal 2008 Plan; and an
expected gain on the sale of nonstrategic assets, respectively.
Includes $0.23, $0.17, $0.10, $0.05, $0.01 and ($0.06) diluted
earnings per share for the year ended February 28, 2010, associated
with the Global Initiative; tax expense associated with the March 2009
divestiture of the value spirits business; the Australian Initiative;
the Fiscal 2007 Wine Plan; other previously announced restructuring
plans; and a gain recognized by the company in connection with the sale
of its U.K. cider business, respectively. (3)
(2) Includes $0.14 diluted earnings per share for the year ending
February 28, 2011, associated with a valuation allowance against
deferred tax assets in the U.K. Includes $0.44, $0.16 and $0.11 diluted
earnings per share for the year ended February 28, 2010, associated
with impairment of certain intangible assets; loss on the contractual
obligation created by the notification by the 9.9% shareholder of
Ruffino S.r.l. ("Ruffino") to exercise the option to put its entire
equity interest in Ruffino to the Company for a specified minimum
value; and the impairment of the Company's investment in Ruffino,
respectively. (3)
(3) May not sum due to rounding as each item is computed independently.
Free Cash Flow Guidance
Free cash flow, as defined in the reconciliation below, is considered a liquidity measure and is considered to provide useful information to investors about the amount of cash generated, which can then be used, after required debt service and dividend payments, for other general corporate purposes. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Free cash flow should be considered in addition to, not as a substitute for, or superior to, cash flow from operating activities prepared in accordance with GAAP.
Range for the Year
Ending February 28, 2011
-----------------------------------
Net cash provided by operating
activities (GAAP) $ 485.0 $ 555.0
Purchases of property, plant
and equipment (110.0) (130.0)
---------------- ----------------
Free cash flow (Non-GAAP) $ 375.0 $ 425.0
================ ================
Actual for the Actual for the
Six Months Ended Six Months Ended
August 31, 2010 August 31, 2009
---------------- ----------------
Net cash provided by operating
activities (GAAP) $ 305.7 $ 97.4
Purchases of property, plant
and equipment (43.2) (65.1)
---------------- ----------------
Free cash flow (Non-GAAP) $ 262.5 $ 32.3
================ ================
CONTACTS Media Angie Blackwell 585-678-7141 Cheryl Gossin 585-678-7191 Investor Relations Patty Yahn-Urlaub 585-678-7483 Bob Czudak 585-678-7170
Released October 6, 2010
