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Leading wine and spirits distributor, Constellation Brands Inc. (STZ - Analyst Report) delivered adjusted earnings of 47 cents per share in the fourth quarter of fiscal 2013, exceeding the Zacks Consensus Estimate of 45 cents. However, earnings dipped 31.9% from the year-ago quarter earnings.
On a reported basis, the company registered earnings of 43 cents per share compared with 51 cents in the year-ago quarter.
Net sales in the quarter increased 11% to $695.9 million from the year-ago quarter, surpassing the Zacks Consensus Estimate of $667 million. On an organic basis, the company’s wine and spirits sales grew 8% year over year. Net sales gained on the back of higher volumes and better product mix in the wine and spirits business, coupled with benefits from the Mark West acquisition.
Cost and Margin Performance
Cost of products sold escalated 13.1% year over year to $432.0 million in the quarter; however, based on revenues, it expanded 130 basis points (bps) to 62.1%. Adjusted gross profit increased 7.3% to $263.9 million and gross margin contracted 130 bps to 37.9%.
Adjusted selling, general and administrative (SG&A) expenses augmented 6% to $130.3 million in the quarter. Based on sales, it decreased 90 bps to 18.7% from the comparable prior-year quarter. Constellation Brands' adjusted operating income increased 8.5% to $133.6 million from $123.1 million in the year-ago quarter, primarily due to robust net sales growth. However, operating margin contracted 40 bps to 19.2%.
Including equity earnings from its 50% interest in the Crown joint venture, the company reported adjusted earnings before interest and tax (EBIT) of $183.9 million, an increase of 7% from $172.1 million reported in the year-ago quarter.
During the quarter, the company’s interest expense soared 26% to $60.4 million, primarily driven by the hiked average borrowings. Effective tax rate in the quarter was 27.0% versus a negative 11% rate for the year-ago quarter. Tax rates in the quarter included the benefit of higher foreign tax credits.
Fiscal 2013 Results
For fiscal 2013, Constellation Brands reported adjusted earnings of $2.19 per share, down 6% from $2.34 per share earned in fiscal 2012 and slightly above the Zacks Consensus Estimate of $2.18 per share.
Net sales for fiscal 2013 escalated 5% year over year to $2,796.1 million and surpassed the Zacks Consensus Estimate of $2,767 million.
Constellation Brands’ cash and cash investments as of Feb 28, 2013 was $331.5 million. During fiscal 2013, Constellation Brands generated $556.3 million of cash from operations compared with $784.1 million in fiscal 2012. Through the same time period, the company generated a free cash flow of $494 million compared with $716 million reported in the prior year.
Fiscal 2014 Outlook
For fiscal 2014, Constellation Brands expects adjusted earnings guidance in the range of $2.55–$2.85 per share compared with $2.19 per share reported in fiscal 2013. On a reported basis, earnings per share in fiscal 2014 are projected in the $2.29–$2.59 per share range, above $2.04 per share earned in fiscal 2013.
Certain factors were considered before providing the guidance, such as an interest expense expectation in the range of approximately $345–$355 million, an approximate tax rate of 37% and weighted average diluted shares outstanding of approximately 199 million.
The company is expected to incur capital expenditures to the tune of $200 - $230 million, including about $120 - $140 million for expansion of the Piedras Negras brewery. Moreover, the company anticipates generating a free cash flow in the range of $475–$575 million.
Constellation Brands currently has a Zacks Rank #3 (Hold). Other stocks performing well in the alcohol-beverage space include Companhia de Bebidas Das Americas, or AmBev , which has a Zacks Rank #1 (Strong Buy), Grupo Modelo S.A.B. de C.V. and Molson Coors Brewing Company (TAP - Analyst Report), both of which carry a Zacks Rank #2 (Buy).