VICTOR, N.Y., Oct 6, 2010 - (ACN Newswire) - 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.
Contact:
Media
Angie Blackwell - +1-585-678-7141
Cheryl Gossin - +1-585-678-7191
Investor Relations
Patty Yahn-Urlaub - +1-585-678-7483
Bob Czudak - +1-585-678-7170
Topic: Earnings
Source: Constellation Brands
Sectors: Daily Finance, Food & Beverage
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