Constellation Brands Reports Q1 Fiscal 2011 Results
Constellation Brands Reports Q1 Fiscal 2011 Results
VICTOR, N.Y., July 1 -
— Achieves comparable basis diluted EPS of $0.38 and reported basis
diluted EPS of $0.22; comparable basis results reflect favorable tax
rate
— U.S. distributor program gains traction
— Initiates $300 million accelerated stock buyback and updates full-year
diluted EPS guidance to reflect transaction benefits
— On target to achieve free cash flow of $350 - $400 million
First Quarter 2011 Financial Highlights*
(in millions, except per share data)
Comparable % Change Reported % Change
—- - - -
Consolidated net sales $788 -1% $788 -1%
Operating income $103 -17% $96 14%
Operating margin 13.1% -270 bps 12.2% 150 bps
Equity in earnings of equity method
investees** $55 -12% $55 -13%
Earnings before interest and taxes
(EBIT) $158 -16% NA NA
Net income $83 14% $49 NM
Diluted earnings per share $0.38 15% $0.22 NM
Constellation Brands, Inc. (NYSE:STZ)(NYSE:ASX:)(NYSE:CBR), the world’s leading wine company, reported today its first quarter fiscal 2011 results.
(Logo: http://www.newscom.com/cgi-bin/prnh/20040119/STZLOGO )
“I am pleased with our first quarter results that are in line with our expectations,” said Rob Sands, president and chief executive officer, Constellation Brands. “We are beginning to see benefits from our focus on profitable organic growth. Our U.S. distributor initiative gained traction in the first quarter as we experienced improved results at retail. We also increased brand investments and promotional activities and launched several new products, all of which drove an improvement in depletion trends. Examples of new products introduced during the quarter include blufeld German riesling, Black Box malbec, Woodbridge by Robert Mondavi brut sparkling wine and the Arbor Mist White Pear pinot grigio.”
First Quarter 2011 Net Sales Highlights*
(in millions)
Reported Organic
Constant Constant
Net Currency Net Currency
Sales % Change Change Sales % Change Change
——- - —————- - ———
Consolidated $788 -1% -5% $788 5% -
Wine $729 - -5% $729 4% -1%
North America Wine $532 1% -2% $532 1% -2%
Australia and Europe
Wine $198 -5% -13% $198 10% 1%
Spirits $58 -3% -3% $58 28% 28%
—- —- —- —- —- —-
*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; NA=Not applicable
Net Sales Commentary
Reported consolidated net sales decreased one percent due primarily to the divestitures of the U.K. cider and value spirits businesses partially offset by the favorable impact of year-over-year currency exchange rate fluctuations.
Consolidated wine organic net sales on a constant currency basis decreased one percent. North America wine net sales on a constant currency basis decreased two percent as a slight increase in volume was more than offset by higher promotion costs. Australia and Europe wine net sales on an organic constant currency basis increased one percent versus the prior year first quarter.
Total spirits organic net sales increased 28 percent for the quarter, led by a 40 percent gain for SVEDKA vodka. “Our first ever SVEDKA television advertising campaign which asks consumers “R.U. bot or not?” generates excitement around this phenomenal vodka brand,” said Sands. “The unique campaign featuring the SVEDKA fembot continues to resonate well with consumers.”
Operating Income, Net Income, Diluted EPS Commentary
The consolidated comparable basis operating income decline was primarily driven by a $15 million decrease in the North America wine segment due primarily to higher promotion spending.
Constellation’s equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $54 million, a decrease of 14 percent from the prior year first quarter. For first quarter 2011, Crown generated net sales of $622 million, a decrease of three percent, and operating income of $109 million, a decrease of 14 percent. Net sales for Crown were impacted primarily by higher promotions, unfavorable mix and lower volume. Operating income for Crown decreased primarily due to timing of promotional and marketing investments, a contractual product cost increase, unfavorable mix and lower volume.
“After successfully executing the Cinco de Mayo holiday programming and kicking off promotions tied to World Cup Soccer, Crown launched its largest promotion ever with the ‘Win A Beach Getaway.’ This summer consumer sweepstakes event is the first time that Crown has fully integrated television advertising, packaging and promotional displays in both on and off premise channels,” said Sands. “We believe these programs and other activities helped to drive positive depletion growth during the quarter.”
For first quarter 2011, pre-tax restructuring charges and unusual items totaled $7 million compared to $40 million for the prior year first quarter.
Interest expense totaled $49 million, a decrease of 29 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 24 percent which reflects the favorable outcome of various tax items and compares to a 39 percent rate for the prior year first quarter. The company continues to anticipate a full year comparable basis effective tax rate of 35 percent. The reported basis effective tax rate for the quarter reflects a $0.13 diluted EPS charge associated with a valuation allowance against deferred tax assets in the U.K.
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 final number of shares to be received under the ASB transaction will be determined at the close of the transaction. The company used its revolving credit facility to fund the ASB transaction.
“For fiscal 2011, the company anticipates generating strong free cash flow in the range of $350-$400 million,” said Bob Ryder, chief financial officer, Constellation Brands. “While we plan to continue to pay down debt in fiscal 2011, we have redeployed a portion of free cash flow to repurchase stock as we believe Constellation shares represent good value. We are increasing our EPS guidance by $0.10 to reflect the estimated benefit of the stock buyback.”
Summary
“The first quarter represents a solid start to the year,” said Sands. “We are on track to achieve our strategic and financial goals, the most important of which is to drive profitable organic growth. While macroeconomic and competitive challenges persist, we are encouraged by improving market trends in our U.S. wine and beer businesses.”
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 FY10 FY11 FY10
Estimate Actual Estimate Actual
- ——— - ———
Fiscal Year $1.33-$1.48 $0.45 $1.63 - $1.78 $1.69
Ending Feb. 28 —— ——- ——— ——-
Full-year fiscal 2011 guidance includes the following current assumptions:
— Interest expense: approximately $210 - $220 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 212 million
— Free cash flow: $350 - $400 million
Conference Call
A conference call to discuss first 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 Thursday, July 1, 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: http://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)(NYSE:and)(NYSE:STZ.B) 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 http://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 August 31, 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 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)
February
May 31, 28,
2010 2010
—— ——
Assets
Current Assets:
Cash and cash investments $20.9 $43.5
Accounts receivable, net 636.5 514.7
Inventories 1,795.6 1,879.9
Prepaid expenses and other 109.0 151.0
——- ——-
Total current assets 2,562.0 2,589.1
Property, plant and equipment, net 1,522.9 1,567.2
Goodwill 2,570.9 2,570.6
Intangible assets, net 922.7 925.0
Other assets, net 317.6 442.4
——- ——-
Total assets $7,896.1 $8,094.3
======== ========
Liabilities and Stockholders’ Equity
Current Liabilities:
Notes payable to banks $564.7 $371.2
Current maturities of long-term debt 252.1 187.2
Accounts payable 224.8 268.8
Accrued excise taxes 50.8 43.8
Other accrued expenses and
liabilities 441.8 501.6
——- ——-
Total current liabilities 1,534.2 1,372.6
Long-term debt, less current
maturities 3,201.0 3,277.1
Deferred income taxes 547.5 536.2
Other liabilities 316.0 332.1
——- ——-
Total liabilities 5,598.7 5,518.0
Total stockholders’ equity 2,297.4 2,576.3
Total liabilities and stockholders’
equity $7,896.1 $8,094.3
======== ========
Constellation Brands, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Three Months Ended
——
May 31, May 31,
2010 2009
—— ——
Sales $976.2 $1,003.8
Excise taxes (188.7) (212.2)
——— ———
Net sales 787.5 791.6
Cost of product sold (517.5) (522.9)
——— ———
Gross profit 270.0 268.7
Selling, general and administrative
expenses (168.8) (165.1)
Restructuring charges (4.9) (18.9)
—— ——-
Operating income 96.3 84.7
Equity in earnings of equity method
investees 54.5 62.8
Interest expense, net (48.5) (68.4)
——- ——-
Income before income taxes 102.3 79.1
Provision for income taxes (53.2) (72.6)
Net income $49.1 $6.5
===== ====
Earnings Per Common Share:
Basic - Class A Common Stock $0.23 $0.03
Basic - Class B Common Stock $0.21 $0.03
Diluted - Class A Common Stock $0.22 $0.03
Diluted - Class B Common Stock $0.21 $0.03
Weighted Average Common Shares
Outstanding:
Basic - Class A Common Stock 192.713 195.233
Basic - Class B Common Stock 23.726 23.744
Diluted - Class A Common Stock 218.856 219.820
Diluted - Class B Common Stock 23.726 23.744
Constellation Brands, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended
——
May 31, May 31,
2010 2009
—— ——
Cash Flows From Operating Activities
Net income $49.1 $6.5
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Deferred tax provision (benefit) 35.3 (27.1)
Depreciation of property, plant and
equipment 30.9 34.1
Equity in earnings of equity method
investees, net of distributed
earnings 23.1 (23.6)
Stock-based compensation expense 11.0 12.2
Amortization of intangible and other
assets 3.7 3.1
Loss on business sold - 0.8
(Gain) loss on disposal or impairment
of long-lived assets, net (1.4) 0.4
Change in operating assets and
liabilities, net of effects
from purchases and sales of
businesses:
Accounts receivable, net (133.3) (132.8)
Inventories 61.0 34.5
Prepaid expenses and other current
assets 7.0 4.9
Accounts payable (30.6) (28.2)
Accrued excise taxes 8.5 6.0
Other accrued expenses and liabilities (0.7) 55.2
Other, net (3.9) (0.8)
—— ——
Total adjustments 10.6 (61.3)
—— ——-
Net cash provided by (used in)
operating activities 59.7 (54.8)
—— ——-
Cash Flows From Investing Activities
Proceeds from note receivable 60.0 -
Proceeds from sales of assets 1.1 1.2
Investment in equity method investee (29.6) (0.3)
Purchases of property, plant and
equipment (25.6) (47.1)
(Repayments) proceeds from sale of
business (1.6) 270.2
Other investing activities 0.3 0.3
—- —-
Net cash provided by investing
activities 4.6 224.3
—- ——-
Cash Flows From Financing Activities
Purchases of treasury stock (300.0) -
Principal payments of long-term debt (1.3) (269.5)
Payment of financing costs of long-
term debt (0.2) -
Net proceeds from notes payable 194.6 98.6
Exercise of employee stock options 16.7 3.4
Excess tax benefits from stock-based
payment awards 4.6 1.2
—- —-
Net cash used in financing activities (85.6) (166.3)
——- ———
Effect of exchange rate changes on
cash and cash investments (1.3) 0.5
—— —-
Net (decrease) increase in cash and
cash equivalents (22.6) 3.7
Cash and cash investments, beginning
of period 43.5 13.1
Cash and cash investments, end of
period $20.9 $16.8
===== =====
Constellation Brands, Inc. and Subsidiaries
SUMMARIZED SEGMENT AND EQUITY EARNINGS INFORMATION
(in millions)
Three Months Ended
——
Percent
May 31, May 31, Change
2010 2009
—— ——
Constellation Wines North America (1)
Wine net sales $531.7 $524.2 1%
Spirits net sales 58.2 60.1 (3%)
—— ——
Segment net sales $589.9 $584.3 1%
Segment operating income $132.5 $147.3 (10%)
% Net sales 22.5% 25.2%
Equity in earnings (losses)
of equity method
investees $0.1 $(1.2) NM
Constellation Wines Australia and
Europe (1)
Wine net sales $197.6 $207.3 (5%)
——— ———
Segment net sales $197.6 $207.3 (5%)
Segment operating (loss) income $(2.9) $0.3 NM
% Net sales (1.5%) -
Equity in earnings of equity method
investees $0.6 $1.1 (45%)
Corporate Operations and Other segment
operating loss $(26.4) $(22.7) 16%
Equity in earnings of Crown Imports
(2) $54.3 $62.9 (14%)
Reportable Segment Operating Income
(A) $103.2 $124.9
Restructuring Charges and Unusual
Items (6.9) (40.2)
—— ——-
Consolidated Operating Income (GAAP) $96.3 $84.7
===== =====
Reportable Segment Equity in Earnings
of Equity Method Investees (B) $55.0 $62.8
Restructuring Charges and Unusual
Items (0.5) -
Consolidated Equity in Earnings of
Equity Method Investees (GAAP) $54.5 $62.8
===== =====
Consolidated Earnings Before Interest
and Taxes (Non-GAAP) (A+B) $158.2 $187.7
====== ======
(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
Net sales $621.5 $639.1 (3%)
Operating income $108.9 $126.0 (14%)
% Net sales 17.5% 19.7%
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 three months
ended May 31, 2009, 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. 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.
Constant
Three Months Ended Currency
——
May 31, May 31, Percent Currency Percent
Change
2010 2009 Change Impact (1)
—- —-
Consolidated
Net Sales
Wine $729.3 $731.5 - 5% (5%)
Spirits 58.2 60.1 (3%) - (3%)
—— ——
Consolidated
reported net
sales 787.5 791.6 (1%) 4% (5%)
Less: Spirits
net sales (2) - (14.8)
Less: Cider
net sales (3) - (27.7)
Consolidated
organic net
sales $787.5 $749.1 5% 5% -
====== ======
Consolidated
Wine Net Sales
Wine $729.3 $731.5 - 5% (5%)
Less: Cider
net sales (3) - (27.7)
Consolidated
wine organic
net sales $729.3 $703.8 4% 5% (1%)
====== ======
Constellation
Wines North
America Net
Sales
Wine reported
net sales $531.7 $524.2 1% 3% (2%)
====== ======
Spirits
reported net
sales $58.2 $60.1 (3%) - (3%)
Less: Spirits
net sales (2) - (14.8)
Spirits organic
net sales $58.2 $45.3 28% - 28%
===== =====
Constellation
Wines
Australia and
Europe Net
Sales
Wine reported
net sales $197.6 $207.3 (5%) 8% (13%)
Less: Cider
net sales (2) - (27.7)
Wine organic
net sales $197.6 $179.6 10% 9% 1%
====== ======
(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
three months ended May 31, 2009.
(3) For the period March 1, 2009, through May 31, 2009, included in the
three months ended May 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 May 31, 2010
—-
Reported Inventory Strategic
Basis Step-up Business
Realignment
(GAAP) (2)
——— ——-
Net Sales $787.5
Cost of product sold (517.5) 1.0 1.0
———
Gross Profit 270.0 1.0 1.0
Selling, general and
administrative expenses
(“SG&A”) (168.8)
Restructuring charges (4.9) 4.9
—— —-
Operating Income 96.3 1.0 5.9
Equity in earnings of equity
method investees 54.5
EBIT
Interest expense, net (48.5)
——-
Income Before Income Taxes 102.3 1.0 5.9
(Provision for) benefit from
income taxes (53.2) (0.4) (1.3)
——-
Net Income $49.1 $0.6 $4.6
===== ==== ====
Diluted Earnings Per Common
Share $0.22 $- $0.02
===== === =====
Weighted Average Common Shares 218.856 218.856 218.856
Outstanding - Diluted ======= ======= =======
Gross Margin 34.3%
SG&A as a percent of net sales 21.4%
Operating Margin 12.2%
Effective Tax Rate 52.0%
——
Three Months Ended May 31, 2010
—-
Other
(3) Comparable
——— Basis
(Non-GAAP)
—-
Net Sales $787.5
Cost of product sold (515.5)
———
Gross Profit - 272.0
Selling, general and administrative
expenses (“SG&A”) (168.8)
Restructuring charges -
—-
Operating Income - 103.2
Equity in earnings of equity method
investees 0.5 55.0
——
EBIT 158.2
Interest expense, net (48.5)
——-
Income Before Income Taxes 0.5 109.7
(Provision for) benefit from income
taxes 28.1 (26.8)
—— ——-
Net Income $28.6 $82.9
===== =====
Diluted Earnings Per Common Share $0.13 $0.38
===== =====
Weighted Average Common Shares 218.856 218.856
Outstanding - Diluted ======= =======
Gross Margin 34.5%
SG&A as a percent of net sales 21.4%
Operating Margin 13.1%
Effective Tax Rate 24.4%
——
Three Months Ended May 31, 2009
—-
Reported Inventory Strategic
Basis Step-up Business
Realignment
(GAAP) (2)
——— ——-
Net Sales $791.6
Cost of product sold (522.9) 2.7 4.8
———
Gross Profit 268.7 2.7 4.8
Selling, general and administrative
expenses (“SG&A”) (165.1) 13.8
Restructuring charges (18.9) 18.9
——- ——
Operating Income 84.7 2.7 37.5
Equity in earnings of equity method
investees 62.8
EBIT
Interest expense, net (68.4)
——-
Income Before Income Taxes 79.1 2.7 37.5
(Provision for) benefit from income
taxes (72.6) (1.1) 27.1
——-
Net Income $6.5 $1.6 $64.6
==== ==== =====
Diluted Earnings Per Common Share $0.03 $0.01 $0.29
===== ===== =====
Weighted Average Common Shares 219.820 219.820 219.820
Outstanding - Diluted ======= ======= =======
Gross Margin 33.9%
SG&A as a percent of net sales 20.9%
Operating Margin 10.7%
Effective Tax Rate NM
—-
Three Months Ended May 31, 2009
—-
Other Comparable
——- Basis
(Non-GAAP)
—-
Net Sales $791.6
Cost of product sold (515.4)
———
Gross Profit - 276.2
Selling, general and administrative
expenses (“SG&A”) (151.3)
Restructuring charges -
—-
Operating Income - 124.9
Equity in earnings of equity method
investees 62.8
——
EBIT 187.7
Interest expense, net (68.4)
——-
Income Before Income Taxes - 119.3
(Provision for) benefit from income
taxes - (46.6)
Net Income $- $72.7
=== =====
Diluted Earnings Per Common Share $- $0.33
=== =====
Weighted Average Common Shares 219.820 219.820
Outstanding - Diluted ======= =======
Gross Margin 34.9%
SG&A as a percent of net sales 19.1%
Operating Margin 15.8%
Effective Tax Rate 39.1%
——
Percent Percent
Change - Change -
Reported Comparable
Basis Basis
(Non-
(GAAP) GAAP)
——— ——-
Net Sales (1%) (1%)
Cost of product sold (1%) -
Gross Profit - (2%)
Selling, general and administrative
expenses (“SG&A”) 2% 12%
Restructuring charges (74%) N/A
Operating Income 14% (17%)
Equity in earnings of equity method
investees (13%) (12%)
EBIT N/A (16%)
Interest expense, net (29%) (29%)
Income Before Income Taxes 29% (8%)
(Provision for) benefit from income
taxes (27%) (42%)
Net Income NM 14%
Diluted Earnings Per Common Share NM 15%
Weighted Average Common Shares
Outstanding - Diluted
Gross Margin
SG&A as a percent of net sales
Operating Margin
Effective Tax Rate
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 ended May 31, 2010, and May 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 May 31, 2010, strategic business
realignment items primarily include costs recognized by the company
in connection with the Global Initiative of $5.5 million, net of a
tax benefit of $1.2 million. For the three months ended May 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 $21.2 million,
net of a tax benefit of $9.5 million.
(3) For the three months ended May 31, 2010, other consists of a
valuation allowance against deferred tax assets in the U.K. of $28.1
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)
Diluted Earnings Per Share Guidance Range for the Year
Ending February 28,
2011
———
Forecasted diluted earnings per share -reported
basis (GAAP) $1.33 $1.48
Strategic business realignment (1) 0.17 0.17
Other (2) 0.13 0.13
—— ——
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 $0.12, $0.04 and $0.01 diluted earnings per share for the
year ending February 28, 2011, associated with the Global
Initiative; the Australian Initiative and the Fiscal 2008 Plan,
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 $0.13 diluted earnings per share for the year ending
February 28, 2011, associated primarily 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 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) $460.0 $530.0
Purchases of property, plant and equipment (110.0) (130.0)
——— ———
Free cash flow (Non-GAAP) $350.0 $400.0
====== ======
Actual for Actual for
the Three the Three
Months Months
Ended May Ended May
31, 2010 31, 2009
—- —-
Net cash provided by (used in) operating
activities (GAAP) $59.7 $(54.8)
Purchases of property, plant and equipment (25.6) (47.1)
——- ——-
Free cash flow (Non-GAAP) $34.1 $(101.9)
===== =======
Photo: http://www.newscom.com/cgi-bin/prnh/20040119/STZLOGO
Source: Constellation Brands, Inc.
CONTACT: Media, Angie Blackwell, +1-585-678-7141, or Cheryl Gossin,
+1-585-678-7191; or Investor Relations, Patty Yahn-Urlaub, +1-585-678-7483, or
Bob Czudak, +1-585-678-7170, all of Constellation Brands, Inc.
Web Site: http://www.cbrands.com/