Constellation Brands Reports Strong Quarter, Boosted by Beer Business
03 Jul 2014 --- Constellation Brands, Inc., a leading beverage alcohol company, has reported its first quarter 2015 results. "We posted a great quarter reflecting outstanding results for our beer business as well as wine and spirits performance that was generally in-line with our expectations," said Rob Sands, president and chief executive officer, Constellation Brands.
"Within our beer business, we continue to capitalize on our industry-leading performance and excellent retail execution across our entire Mexican beer portfolio. These strong results are driving the upward revision to our EPS guidance for fiscal 2015."
The significant increase in consolidated net sales was driven by $868 million of incremental net sales related to the consolidation of Crown Imports' commercial beer business. For the quarter, net sales for the beer segment increased 14 percent primarily due to volume growth driven by strong consumer demand.
"Our beer business kicked off the summer selling season with strong execution during Cinco de Mayo and Memorial Day with the launch of the '120 Days of Summer' advertising campaign. These activities helped to drive strong marketplace performance during the first quarter as we continue to significantly outperform the industry and the import category, driven by Modelo Especial, Corona Extra and the rollout of Modelo Especial Chelada. These results are driving a change in our full year beer guidance, as we now expect beer segment net sales growth of approximately 10 percent and beer segment operating income growth in the range of 25 to 30 percent," said Sands. (1)
Wine and spirits net sales on a constant currency basis decreased one percent. This reflects lower shipment volume primarily resulting from planned distributor inventory destocking, partially offset by the recognition of an agreed upon "make whole" distributor payment associated with this destocking activity, as well as favorable mix. "While first quarter depletion trends were impacted by some inventory destocking at retail, we gained market share in IRI channels and experienced excellent performance for a number of our focus brands including Mark West, Black Box, Kim Crawford, Ruffino, Rex Goliath, and Woodbridge by Robert Mondavi. Our wine and spirits business remains on track to meet its goals for the year," said Sands.
The increase in consolidated comparable basis operating income includes an incremental benefit of $288 million from the consolidation of results for Crown and the Mexican brewery as a result of the beer business acquisition. The increase in wine and spirits operating income primarily reflects favorable mix and lower SG&A costs.
Equity in earnings of equity method investees totaled $1 million compared to $67 million for the prior year first quarter. The decrease was due primarily to the timing of the close of the beer business acquisition.
Interest expense totaled $86 million, an increase of 58 percent. The increase was primarily due to higher average borrowings driven by the financing for the beer business acquisition, partially offset by lower average interest rates.
The effective tax rate for first quarter 2015 was 33 percent which reflected the benefits from integrating the beer business as compared to a 36 percent tax rate for the prior year first quarter.
Free cash flow for first quarter 2015 totaled $101 million as compared to a use of cash of $19 million for the prior year first quarter. The increase was primarily due to incremental benefits from the beer business acquisition, partially offset by higher capital expenditures related primarily to the expansion of the brewery.
"Our free cash flow generation and planned brewery investments are on track for the year. We continue to work diligently to finalize our plans for commodity sourcing and longer-term capacity expansion," said Bob Ryder, chief financial officer, Constellation Brands.
The company completed its acquisition of Grupo Modelo's U.S. beer business from Anheuser-Busch InBev on June 7, 2013 for approximately $5.3 billion, including $558 million that was paid as a post-closing purchase price adjustment in June 2014. The transaction includes full ownership of Crown, which provides Constellation with complete, independent control of the U.S. commercial business; a state-of-the-art brewery in Nava, Mexico; and an exclusive perpetual brand license in the U.S. to import, market and sell Corona and the other Modelo brands Crown currently sells in the U.S. market. The perpetual brand license also includes certain brands and brand extensions not currently marketed in the U.S. by Crown and the freedom to develop new brand extensions and innovations.
