Finanzas: Constellation Brands Reports Third Quarter Fiscal 2017 Results
Constellation Brands, Inc. (NYSE: STZ and STZ.B), a leading beverage alcohol company, reported today its third quarter fiscal 2017 results.
“It has been another dynamic quarter for our business and I am proud of our impressive financial results and recent accomplishments,” said Rob Sands, president and chief executive officer, Constellation Brands. “We sold our Canadian wine business as part of our strategy to focus on premium, margin accretive, growth opportunities. We increased our functioning brewery capacity and innovation flexibility to support our fast-growing, high-end Mexican beer portfolio with the purchase of the Obregon brewery operation in Mexico. We strengthened our premium wine and spirits portfolio with the acquisitions of Charles Smith Wines and High West Distillery, and we repurchased a significant number of our shares. Our business has never been stronger and the future prospects across our beer, wine and spirits portfolio are compelling,” said Sands.
Net Sales Commentary
For the quarter, the company generated consolidated net sales growth of 10 percent. This reflects organic net sales growth on a constant currency basis of seven percent and acquisition benefits.
Net sales for beer increased 16 percent. This was due to a 12 percent increase in organic net sales driven primarily by volume growth and favorable pricing, and the acquisition benefit from Ballast Point.
“Our beer business delivered double-digit sales and profit growth for the third quarter, and gained significant market share of the high-end of the U.S. beer category, as the #1 contributor to growth, with our key brands growing across all market channels,” said Sands.
Wine and spirits net sales increased five percent. This primarily reflects the acquisition benefit from The Prisoner wine brands and favorable mix, partially offset by lower volume due to timing, as U.S. depletion volume outpaced shipment volume during the quarter.
“During the quarter, our wine business gained IRI volume and dollar share driven by strong depletion growth for our Focus Brands, and became the #1 share gainer in the U.S. wine category. We also successfully integrated Charles Smith and High West into our portfolio. We’re driving strong growth trends for these brands, which are enabling us to capitalize on U.S. market trends that favor high-end wine and spirits,” said Sands.
Operating Income and Income Tax Commentary
For the quarter, consolidated reported and comparable basis operating income increased 19 percent and 12 percent, respectively.
Third quarter fiscal 2017 comparable adjustments affecting operating income totaled a net gain of $2 million as compared to a net loss of $29 million for the same period last year.
Beer operating income increased 15 percent, primarily due to organic volume growth and favorable pricing, partially offset by higher marketing investment. The four percent increase in wine and spirits operating income primarily reflects favorable mix, the benefit from The Prisoner acquisition and favorable COGS, partially offset by higher investment in SG&A and marketing, as well as lower volumes.
The effective tax rate for third quarter fiscal 2017 was 16 percent versus 32 percent for the prior year third quarter. During third quarter fiscal 2017, the company determined that a portion of the earnings of certain foreign subsidiaries would be indefinitely reinvested (APB 23). This assertion allows the company to record income taxes on certain foreign earnings using the applicable foreign jurisdiction tax rates, rather than the higher U.S. tax rate. The fiscal 2017 year-to-date impact of this change was recorded in third quarter fiscal 2017. The effective tax rate for nine months fiscal 2017 was 27 percent. For fiscal 2017, the company expects the effective tax rate on a reported basis to approximate 26 percent, which reflects a tax benefit from the sale of the Canadian wine business, and the effective tax rate on a comparable basis to approximate 27 percent.
Operating Cash Flow and Free Cash Flow Commentary
For the first nine months of fiscal 2017, operating cash flow totaled $1.42 billion, an increase of 30 percent. Free cash flow for the first nine months of fiscal 2017 totaled $824 million, as compared to $578 million for the same period last year. This reflects higher operating cash flow, partially offset by higher capital expenditures.
“We are pleased with our strong operating cash flow results and we continue to target fiscal 2017 free cash flow in the range of $575 to $675 million,” said David Klein, executive vice president and chief financial officer, Constellation Brands. “We recently achieved “Investment Grade” status, successfully completed a new senior notes offering at an attractive interest rate, and opportunistically repurchased a significant number of our shares. These activities continue to build shareholder value,” added Klein.
Recent Business Activities
In October 2016, the company completed the acquisitions of High West for $137 million, net of cash acquired and subject to post-closing adjustments, and Charles Smith for $121 million.
In December 2016, the company completed the purchase of the Obregon, Mexico brewery operation from Grupo Modelo, a subsidiary of Anheuser-Busch InBev SA/NV for $583 million, net of cash acquired and subject to post-closing adjustments.
The company also completed the sale of its Canadian wine business to Ontario Teachers’ Pension Plan in December 2016. The transaction was valued at C$1.04 billion ($776 million) and the company received cash proceeds, net of outstanding debt, of approximately C$775 million ($581 million), subject to post-closing adjustments. The company received the proceeds from the outstanding debt prior to the sale. The company expects to record a net gain in connection with this transaction during fourth quarter fiscal 2017 and after-tax proceeds are expected to approximate $511 million.
For nine months fiscal 2017, net sales and operating income that will no longer be part of the wine and spirits segment results after the sale of the Canadian wine business totaled $289 million and $45 million, respectively. This compares to $284 million of net sales and $48 million of operating income for nine months fiscal 2016. For fiscal 2016, net sales and operating income for the divested business totaled $365 million and $63 million, respectively.
During the third quarter, Constellation Brands also made minority investments in Catoctin Creek Distilling Company, a producer of premium rye whisky and gin from organic sources, as well as Bardstown Bourbon Company, the largest new whiskey distillery in the U.S.
In November 2016, Constellation’s board of directors authorized a new share repurchase program of up to $1 billion of the company’s common stock. This new program was in addition to the company’s then-existing $1 billion share repurchase program. During third quarter fiscal 2017, the company repurchased 2.4 million shares of common stock for $367 million. Through December 31, 2016, the company repurchased 5.4 million shares of common stock for $823 million. As of December 31, 2016, the company has fully utilized its prior $1 billion share repurchase authorization and has $847 million remaining under its new share repurchase authorization.
On January 4, 2017, Constellation’s board of directors declared a quarterly cash dividend of $0.40 per share of Class A Common Stock and $0.36 per share of Class B Common Stock, payable on February 23, 2017, to stockholders of record as of the close of business on February 9, 2017.
For more information: Cbrands
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