Constellation Brands Reports Third Quarter Fiscal 2013 Results
"We continue to post solid depletion trends for our portfolio and outperform the U.S. wine and spirits industry in the SymphonyIRI channels as our promotional investments have driven distribution gains at retail," said Sands.
10 Jan 2013 --- Constellation Brands, Inc., the world's leading premium wine company, reported its third quarter 2013 results.
"The year is unfolding as we expected and we are on track to meet our financial and strategic goals for the year," said Rob Sands, president and chief executive officer, Constellation Brands. "We continue to experience strong marketplace momentum across our beer, wine and spirits portfolio and we were well positioned at retail during the key holiday selling season. We are especially excited about the prospect of achieving the next significant milestone in the history of our company by obtaining 100 percent ownership of Crown Imports, which will solidify Constellation's position as the largest U.S. multi-category supplier across the beverage alcohol segment. We continue to expect this transaction to close during the first calendar quarter of this year."
Net Sales Commentary
Wine and spirits net sales on an organic constant currency basis increased six percent primarily due to an increase in volume and favorable product mix, partially offset by higher promotional costs.
"We continue to post solid depletion trends for our portfolio and outperform the U.S. wine and spirits industry in the SymphonyIRI channels as our promotional investments have driven distribution gains at retail," said Sands. "Innovation efforts are also playing a key role in our marketplace success and Woodbridge, Rex Goliath, Kim Crawford, Ruffino and Mark West are driving excellent performance for our Focus Brands portfolio."
Operating Income and Net Income Commentary
The increase in consolidated comparable basis operating income was driven primarily by the favorable net sales growth combined with benefits from Mark West and Ruffino, partially offset by higher SG&A costs.
The company's equity earnings from its 50 percent interest in the Crown joint venture totaled $39 million compared to $43 million from the prior year third quarter. For third quarter 2013, Crown generated net sales of $547 million, an increase of one percent, and operating income of $79 million, a decrease of nine percent. Third quarter net sales for Crown were tempered by the second quarter wholesaler buy-in of product in advance of planned price increases and the loss of St. Pauli Girl brand volume. As expected, operating income was impacted by the volume shift and the timing of marketing spend.
"Crown continues to outperform the U.S. beer industry and the import category led by strong performance of Modelo Especial, which recently surpassed the 40 million case milestone for calendar 2012," said Sands. "The brand is gaining distribution at retail and experiencing continued discovery by general market consumers in addition to the already strong growth driven by Hispanic consumers. Crown's marketplace results are also benefiting from Corona's 'Find Your Beach for the Game' promotion and Corona Light's 'Refreshing Change of Beer' advertising campaign."
Interest expense totaled $61 million, an increase of 33 percent. The increase was primarily due to higher average borrowings.
The comparable basis effective tax rate for third quarter 2013 was 28 percent which reflected higher foreign tax credits and compares to a 37 percent rate for the prior year third quarter. The company now anticipates the full year effective tax rate for fiscal 2013 to approximate 27 percent, which is the driver of the improved diluted EPS guidance for the year.
Free Cash Flow Commentary
Free cash flow for the first nine months of fiscal 2013 totaled $337 million as compared to $587 million for the same period last year. The decrease was primarily due to higher U.S. grape and bulk wine purchases in fiscal 2013 and the receipt of tax refunds in the prior year period. The company continues to target free cash flow of $450 - $500 million for fiscal 2013.
