June 29, 2012 at 07:30 AM EDT
Constellation Brands Reports First Quarter Fiscal 2013 Results
*Definitions of reported and comparable, as well as reconciliations of non-GAAP financial measures, are contained elsewhere in this news release.
VICTOR, N.Y., June 29, 2012 - Constellation Brands, Inc. (NYSE: STZ), the world`s leading premium wine company, reported today its first quarter 2013 results and details relating to two acquisitions that are expected to positively position the company for the future.
"First quarter results were generally in line with our expectations. From an operational perspective, we are experiencing excellent marketplace momentum for our wine and spirits business and Crown`s imported beer business," said Rob Sands, president and chief executive officer, Constellation Brands. "Earlier today, we announced we are purchasing the remaining 50 percent interest in the Crown joint venture, the leading beer importer in the U.S. This represents a significant milestone for Constellation Brands as we will become the sole importer of the Grupo Modelo brands in the U.S. and solidifies our place in this market for the long term. In addition, we are purchasing Mark West - the nation`s best-selling pinot noir brand."
Launched in 2002, Mark West is primarily a California pinot noir that has grown into a nearly 600,000 case brand selling in the U.S. in the $10-$12 price range at retail. It is currently the top-selling pinot noir brand experiencing nearly 35 percent volume growth in SymphonyIRI channels. "Mark West is an exciting addition to our family of brands," said Sands. "It is a high growth, complementary brand to our existing portfolio." The transaction is expected to close in July and the company estimates the acquisition will be slightly accretive to diluted earnings per share for fiscal 2013.
Net Sales Commentary
Wine and spirits net sales on an organic constant currency basis decreased one percent reflecting higher promotional costs and a decrease in volume, partially offset by favorable product mix.
"Our first quarter sales and depletion trends were in-line with our expectations," said Sands. "As planned, the sell-in of new products into distributor and retail channels in last year`s fourth quarter impacted our sales and depletion trends for the first quarter. However, consumer takeaway trends in SymphonyIRI channels remain robust, as our new product introductions as well as marketing and promotional investments gain traction. We believe our strong marketplace momentum positions us to grow in-line with the U.S. wine and spirits category in fiscal 2013."
Operating Income and Net Income Commentary
The decrease in consolidated comparable basis operating income was driven primarily by promotional spending and higher marketing.
The company`s equity earnings from its 50 percent interest in the Crown joint venture totaled $61 million compared to $60 million from the prior year first quarter. For first quarter 2013, Crown generated net sales of $724 million, an increase of seven percent, and operating income of $123 million, an increase of three percent. The increase in net sales was largely driven by volume growth. The increase in operating income primarily reflects the volume growth partially offset by a timing-related increase in marketing costs and a contractual product cost increase.
"Crown`s momentum in the marketplace continued during the first quarter as it outperformed the U.S. beer industry and the import category while posting high single-digit depletion growth driven by strong performance of Modelo Especial and Corona Extra," said Sands. "Crown kicked off the summer selling season with strong execution during Cinco de Mayo and this season`s `Win Your Beach` sweepstakes promotion as well as other creative advertising campaigns."
Interest expense totaled $51 million, an increase of 14 percent. The increase was primarily due to higher average borrowings and an increase in average interest rates.
The comparable basis effective tax rate for first quarter 2013 was 36.4 percent compared to a 37.0 percent rate for the prior year first quarter.
Free Cash Flow and Common Stock Repurchases Commentary
Free cash flow for the quarter totaled $77 million as compared to $220 million in first quarter 2012. The decrease was primarily due to the receipt of tax refunds in the prior year first quarter. During first quarter 2013, the company repurchased 18 million shares of common stock at a cost of $383 million.
"During the first quarter, we took advantage of our improved credit profile and the attractive interest rate environment to refinance our senior credit facility and issue $600 million of 6%, 10-year Senior Notes," said Bob Ryder, chief financial officer, Constellation Brands. "Proceeds from the notes issuance were effectively used to reduce borrowings under our senior credit facility and to fund the share repurchases. Given the anticipated funding requirements for the Crown transaction, we do not expect to repurchase additional shares during the remainder of fiscal 2013. As we`ve completed nearly 70 percent of our original fiscal 2013 share repurchase target during the first quarter, we are maintaining our weighted average share estimate at a range of 185 to 190 million.
"The Crown transaction is expected to increase the company`s debt to comparable basis EBITDA leverage to the mid-four times range when factoring in a full-year of the additional Crown EBITDA," Ryder added. "Due to the anticipated strong free cash flow generation of Constellation Brands, this leverage ratio should decrease to our targeted range of three to four times within the first 12 months after the close of the transaction."
The table below sets forth management`s current diluted EPS expectations for fiscal 2013 compared to fiscal 2012 actual results, both on a reported basis and a comparable basis.
Constellation Brands Fiscal Year 2013
Full-year fiscal 2013 guidance includes the following current assumptions, including the expected acquisition of the Mark West brand, but excludes any impact from the anticipated purchase of the remaining 50 percent interest in the Crown Imports joint venture:
The company discusses additional non-GAAP measures in this news release, including constant currency net sales, organic net sales, comparable basis EBIT, comparable basis effective tax rate and free cash flow.
Supplemental Financial Information
Tables reconciling non-GAAP measures, together with definitions of these measures and the reasons management uses these measures, are attached to and are part of this news release. Please see the link below.
About Constellation Brands, Inc.
As the world`s leader in premium wine, Constellation Brands, Inc. (NYSE: STZ and STZ.B) is a S&P 500 Index and a Fortune 1000® company with 4,400 employees, sales in 125 countries and operations in 40 facilities worldwide. The company manages a broad portfolio of more than 100 wines, beers and spirits that include: Robert Mondavi, Clos du Bois, Kim Crawford, Inniskillin, Franciscan Estate, Ruffino, Simi, Estancia, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka. Learn more at www.cbrands.com.
The statements made under the heading Outlook, and all statements other than statements of historical facts set forth in this news release regarding Constellation Brands` business strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management, as well as information concerning expected actions of third parties, are forward-looking statements (collectively, the "Projections") that involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the Projections.
During the current quarter, the company may reiterate the Projections. Prior to the start of the company`s quiet period, which will begin at the close of business on Aug. 31, 2012, the public can continue to rely on the Projections as still being the company`s current expectations on the matters covered, unless the company publishes a notice stating otherwise. During the company`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. There can be no assurance that any of the following transactions will occur or will occur on the timetable contemplated hereby: (i) a transaction regarding the acquisition of the Mark West brand and (ii) a transaction regarding the purchase by the company of the remaining 50 percent interest in Crown Imports LLC.
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:
This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Constellation Brands Inc via Thomson Reuters ONE
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