NEWS
RELEASE
13
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CONTACTS
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Media
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Investor
Relations
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Angie
Blackwell – 585-678-7141
Cheryl
Gossin – 585-678-7191
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Patty
Yahn-Urlaub – 585-678-7483
Bob
Czudak – 585-678-7170
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Constellation
Brands Reports
Q2
Fiscal 2010 Results
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Achieves comparable basis
diluted EPS of $0.54 and reported basis diluted EPS of
$0.45
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Quarter benefits from U.S.
distributor transition and tax
timing
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Reaffirms full-year diluted EPS and free cash flow
guidance
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Realigns and consolidates U.S.
sales force and distributor
network
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Continues to benefit from cost
reduction efforts
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Decreases debt by more than
$155 million during the quarter and by $270 million
year-to-date
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Second
Quarter 2010 Financial Highlights*
(in
millions, except per share data)
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Comparable
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Change
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Reported
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Change
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|||||||||||||
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Consolidated
net sales
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$ | 877 | -8 | % | $ | 877 | -8 | % | ||||||||
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Organic
constant currency net sales
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$ | 877 | 4 | % | - | - | ||||||||||
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Operating
income
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$ | 168 | 15 | % | $ | 139 |
NM
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|||||||||
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Operating
margin
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19.1 | % |
380
bps
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15.8 | % |
NM
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||||||||||
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Equity
in earnings of equity method investees**
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$ | 73 | -1 | % | $ | 73 | 4 | % | ||||||||
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Earnings
before interest and taxes (EBIT)
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$ | 241 | 9 | % | - | - | ||||||||||
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Net
income
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$ | 120 | 21 | % | $ | 100 |
NM
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Diluted
earnings per share
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$ | 0.54 | 20 | % | $ | 0.45 |
NM
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VICTOR, N.Y., Oct. 1, 2009 – Constellation Brands, Inc.
(NYSE: STZ, ASX: CBR), the world’s leading wine company, reported today its
fiscal 2010 second quarter results. "Our
performance in the second quarter demonstrates that we are on track to achieve
our full-year goals," said Rob Sands, president and chief executive officer of
Constellation Brands. "We are focused on driving organic growth, building
must-have brands that return the greatest profits and creating efficiencies for
long-term sustainable growth. Our initiative to consolidate distribution in the
U.S. is nearly complete and we anticipate that this effort will be a major
catalyst for future organic brand growth.”
Chief
Financial Officer Bob Ryder added, “We are pleased with the progress made in our
global cost reduction efforts and the continuing drive to increase sustainable
free cash flow and pay down debt. Our deleveraging efforts are progressing well
as debt decreased by more than $155 million during the second quarter and more
than $1 billion since the beginning of fiscal 2009.”
Second
Quarter 2010 Net Sales Highlights*
(in
millions)
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Reported
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Organic
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|||||||||||||||||||||||
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Net
Sales
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Change
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Constant
Currency
Change
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Net
Sales
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Change
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Constant
Currency
Change
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Consolidated
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$ | 877 | -8 | % | -3 | % | $ | 877 | -2 | % | 4 | % | ||||||||||||
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Branded
Wine
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$ | 752 | -4 | % | 2 | % | $ | 752 | -4 | % | 2 | % | ||||||||||||
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Spirits
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$ | 65 | -41 | % | -41 | % | $ | 65 | 49 | % | 49 | % | ||||||||||||
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Other
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$ | 60 | -9 | % | 5 | % | $ | 60 | -9 | % | 5 | % | ||||||||||||
*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.”
NM=Not
meaningful
Net
Sales Commentary
Reported consolidated net sales
decreased eight percent due primarily to the impact of the value spirits
divestiture and year-over-year currency exchange rate fluctuations. Organic net
sales increased four percent on a constant currency basis.
Branded wine organic net sales on a
constant currency basis increased two percent overall, three percent in North
America, five percent in Australia/New Zealand and decreased five percent in
Europe.
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“During
the second quarter, we worked closely with our U.S. distributors to minimize
operational disruption during the transition period. As planned, we shipped
additional inventories to newly appointed distributors to ensure adequate
service levels with retailers. As a result, we experienced a second quarter
sales benefit which we anticipate will reverse in the balance of the year,” said
Sands. “As the transition activities are proceeding well, we believe we are now
in a good position to execute for the key holiday season.”
Total spirits organic net sales
increased 49 percent for the quarter, primarily led by SVEDKA Vodka. “We are
extremely pleased at the continued success of the SVEDKA brand which is
performing well at national chains, control states and on-premise,” Sands
said.
Operating
Income, Net Income, Diluted EPS Commentary
Wines segment operating income
increased $16 million versus the prior year second quarter. This increase is
primarily due to U.S. shipment growth, savings from cost reduction efforts and
the overlap of foreign currency losses from the prior year second quarter. These
benefits were partially offset by the divestiture of the value spirits business
and a decrease in operating income from the international business.
Constellation’s
equity earnings from its 50 percent interest in the Crown Imports
joint venture totaled $72 million, a decrease of three percent from the prior
year second quarter. For second quarter 2010, Crown Imports generated
net sales of $693 million, a decrease of five percent, and operating income of
$145 million, a decrease of three percent.
“While
sales remain challenging in the on-premise and convenience store channels, we
continue to focus on optimizing promotional activity through targeted marketing
and programming. In addition, we are introducing new packaging options and
increasing media exposure,” said Sands. “This month, Crown will launch 24 oz.
cans of Corona Extra and Corona Light into the convenience channel. The company
has also increased its national media buys for Corona Extra and Corona Light
during National Football League games and Major League baseball
playoffs.”
For
second quarter 2010, pre-tax restructuring charges, acquisition-related
integration costs and unusual items totaled $29 million compared to $129 million
for the prior year second quarter.
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Interest
expense totaled $67 million, a decrease of 17 percent. The decrease was
primarily due to lower average borrowings during the quarter.
The effective tax rate in the second
quarter was 31 percent which reflects the completion of various income tax
examinations during second quarter 2010. The company continues to anticipate a
full-year comparable tax rate of 38 percent.
Summary
“The macroeconomic environment remains
challenging but we are beginning to see some signs of stabilization,” said
Sands. “Powered by a strong portfolio of brands which includes Robert Mondavi,
Ravenswood, Blackstone, Kim Crawford and SVEDKA, we believe we have the right
strategies in place to organically grow the business. We intend to continue to
reduce borrowings, improve free cash flow and optimize return on invested
capital. Our expectations for the full year remain unchanged.”
Outlook
The table below sets forth management’s
current diluted EPS expectations for fiscal 2010 compared to fiscal 2009 actual
results, both on a reported basis and a comparable basis.
Constellation
Brands Fiscal 2010
Diluted
Earnings Per Share Outlook
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Reported
Basis
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Comparable
Basis
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FY10
Estimate
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FY09
Actual
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FY10
Estimate
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FY09
Actual
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Fiscal
Year Ending Feb. 28
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$0.97 - $1.07 | $ | (1.40 | ) | $1.60 - $1.70 | $ | 1.60 | |||||||||
Full-year
fiscal 2010 guidance includes the following current assumptions:
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Interest
expense: approximately $260 - $270
million
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Tax
rate: approximately 53 percent on a reported basis, as compared to 38
percent on a comparable basis, primarily due to a provision of 9 percentage
points associated with the March 2009 sale of the value spirits business
and 5 percentage points related to international restructuring activities
which have minimal tax
benefits
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Weighted
average diluted shares outstanding: approximately 222
million
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Free
cash flow: $230 - $270 million
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Conference
Call
A conference call to discuss second
quarter 2010 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 Thursday, Oct. 1, 2009 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,
acquisition-related integration costs and unusual items. The
company’s measure of segment profitability excludes restructuring charges,
acquisition-related integration costs 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 paired with storied brands that suit varied lives and tastes.
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.
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Constellation
Brands (NYSE: STZ and STZ.B; ASX: CBR) is an S&P 500 Index and Fortune 1000®
company with more than 100 total brands in our portfolio, sales in about 150
countries and operations in approximately 50 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 Brands and its product portfolio 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. 23, 2009, 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, or financing 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:
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realization
of expected synergies from acquired
businesses;
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completion
of various portfolio actions; implementation of consolidation activities
and actual U.S. distributor transition
experience;
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achievement
of all expected cost savings from the company's various restructuring
plans, realization of expected asset sale proceeds from the sale of
inventory and other assets, and receipt of all consideration from the
divestiture of the value spirits
business;
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accuracy
of the bases for forecasts relating to joint ventures and associated costs
and capital investment
requirements;
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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;
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raw
material supply, production or shipment difficulties could adversely
affect the company's ability to supply its
customers;
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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;
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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;
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changes
to accounting rules and tax laws, and other factors which could impact the
company's reported financial position or effective tax
rate;
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changes
in interest rates and the inherent unpredictability of currency
fluctuations, commodity prices and raw material costs;
and
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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, 2009, which could cause
actual future performance to differ from current
expectations.
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