01—Abstract
Summary
Summary of the 10-K filed May 29, 1998. Cited figures are marked; the original filing is the authoritative source.
Canandaigua Brands, Inc. reported net sales of $1,212.8 milliona for the fiscal year ended February 28, 1998 (Fiscal 1998), up from $1,135.0 million in Fiscal 1997, an increase of $77.8 million, or 6.9%.
Net income rose to $50.1 millionb, or $2.62 diluted earnings per share, from $27.7 million in Fiscal 1997, an increase of 80.9%. Growth was driven by beer, where net sales rose 26.0% to $376.6 million on strong Corona and other Mexican beer sales, while wine net sales grew 4.0% to $533.3 million and distilled spirits rose 8.9% to $200.3 million. Gross profit increased to $348.7 million, and gross margin improved to 28.8% from 25.6%.
The filing also flags a challenge: although table wine sales increased, the company experienced a market share decline for its wine products during Fiscal 1998, a trend it said continued into fiscal 1999, and it is pursuing pricing and promotional programs to address it. Operating income rose to $117.1 million, and interest expense fell to $32.2 millionc. Balance sheet and cash flow items were mixed.
Total assets were $1,073.2 milliond and stockholders' equity was $415.2 million. Operating cash flow was $28.8 million, reflecting a $65.6 million increase in inventories tied to higher grape purchases.
Total debt declined $11.1 million to $425.2 million, with the debt-to-total-capitalization ratio falling to 50.6% from 54.5%. The company refinanced its credit facilities with a $325.0 million Credit Agreement in December 1997 and has not paid cash dividends since its 1973 initial public offering.
02—Key points
Key Highlights
- Net sales rose 6.9% to $1,212.8 million in Fiscal 1998, led by $77.7 million of additional beer sales, largely Mexican beer.
- Beer net sales increased 26.0% to $376.6 million, and Corona Extra became the number one imported beer nationwide.
- Net income increased 80.9% to $50.1 million, and diluted EPS was $2.62, compared with $1.42 in Fiscal 1997.
- Gross margin improved to 28.8% from 25.6%, and gross profit rose 19.9% to $348.7 million.
- The company disclosed a market share decline in its wine products during Fiscal 1998, a trend it said continued into fiscal 1999.
- Total debt fell $11.1 million to $425.2 million, and the debt-to-total-capitalization ratio decreased to 50.6% from 54.5%.
- The company completed a $325.0 million Credit Agreement in December 1997 and does not pay cash dividends, with its credit agreement and notes restricting payment of them.
03—Questions
Frequently Asked Questions
What drove the company's growth in Fiscal 1998?
Growth came primarily from beer. Beer net sales rose 26.0% to $376.6 million, mainly from Mexican beer such as Corona. Spirits net sales rose 8.9% to $200.3 million and wine net sales rose 4.0% to $533.3 million.
Is the company facing any competitive concerns in wine?
Yes. The filing states that the company experienced a market share decline for its wine products during Fiscal 1998, a trend that continued into fiscal 1999. It is addressing this by adjusting noncompetitive consumer prices on a market-by-market basis and increasing promotional activities where appropriate.
How did profitability change?
Net income rose to $50.1 million from $27.7 million, and diluted EPS was $2.62 versus $1.42. Operating income increased to $117.1 million from $81.8 million, and gross profit as a percent of net sales increased to 28.8% from 25.6%.
Does the company pay dividends, and what are its debt obligations?
The company has not paid cash dividends since its 1973 initial public offering and its policy is to retain earnings. Its Credit Agreement and indentures for its senior subordinated notes restrict dividend payments. Total debt was $425.2 million at February 28, 1998.
What were the cash flow trends?
Net cash provided by operating activities was $28.8 million, reflecting $88.7 million of net income adjusted for noncash items, less a $59.9 million net increase in operating assets, primarily inventories up $65.6 million on higher grape purchases. Capital expenditures were $31.2 million.
04—Continue