How did Constellation Brands perform financially in Fiscal 2007?

Net sales grew 13% to $5,216.4 million and operating income rose 5% to $699.0 million. Net income increased 2% to $331.9 million, and diluted Class A EPS was $1.38 compared with $1.36 in Fiscal 2006. Higher interest expense and a higher effective tax rate of 38.0% limited the net income growth.

Why did interest expense increase so much?

Net interest expense rose 41.7% to $268.7 million, primarily because of higher average borrowings used to finance the Vincor acquisition, along with higher average interest rates. Total debt reached $4,185.5 million at February 28, 2007, up $1,375.7 million from the prior year.

What are the Crown Imports and Matthew Clark joint ventures?

Crown Imports, formed January 2, 2007 with Modelo, imports and markets the Modelo Brands and other imported beers in the U.S. Matthew Clark, formed April 17, 2007 with Punch Taverns, owns the U.K. wholesale business in which each party holds a 50% interest. The company deconsolidated both businesses and now accounts for them under the equity method, and received $178.8 million of cash proceeds from the Matthew Clark formation.

What guidance did management give for Fiscal 2008?

Management plans to reduce distributor wine inventory levels in the U.S. during the first half of Fiscal 2008. This is expected to reduce net sales by $160 million to $190 million and reduce diluted EPS by $0.15 to $0.20. The company also expects Fiscal 2008 restructuring charges of $4.5 million and acquisition-related integration costs of $10.2 million.

Does Constellation Brands pay dividends or buy back stock?

The company has not paid cash dividends on its common stock since its 1973 IPO and intends to retain earnings, and its senior credit facility currently restricts cash dividends. In Fiscal 2007 it repurchased 3,894,978 Class A shares for $100.0 million. In February 2007 the board authorized up to $500 million of additional repurchases, and 2,457,200 shares were bought for $55.1 million through April 27, 2007.

STZ 10-K FY2007 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 30, 2007. Cited figures are marked; the original filing is the authoritative source.

Constellation Brands, Inc. reported net sales of $5,216.4 million^a for the fiscal year ended February 28, 2007 (Fiscal 2007), up $612.9 million, or 13%, from $4,603.5 million in Fiscal 2006, driven primarily by $405.8 million of net sales from the Vincor acquisition and a $95.7 million increase in base branded wine net sales on a constant currency basis.

Operating income rose to $699.0 million^b from $666.1 million, and net income increased to $331.9 million from $325.3 million, an increase of $6.6 million, or 2%. Diluted Class A EPS was $1.38 versus $1.36 in the prior year. Interest expense, net increased to $268.7 million, up 41.7%, reflecting higher average borrowings used to finance the Vincor acquisition and higher interest rates, and total debt rose to $4,185.5 million, with the debt-to-total-capitalization ratio increasing to 55.1% from 48.6%.

The filing describes several structural changes. On January 2, 2007, the company formed Crown Imports, a 50/50 imported beer joint venture with Modelo, and began accounting for it under the equity method. On April 17, 2007, it formed Matthew Clark, a 50/50 U.K. wholesale joint venture with Punch Taverns, and also deconsolidated that business.

The Company received $178.8 million^c of cash proceeds from the Matthew Clark formation. It also acquired the SVEDKA Vodka brand in March 2007 for $383.7 million, net of cash acquired. Going into Fiscal 2008, management plans to reduce U.S. distributor wine inventory levels, which is expected to reduce net sales by $160 million to $190 million and diluted EPS by $0.15 to $0.20.

The company has a $900 million^d revolving credit facility and a $3.9 billion aggregate credit facility under its 2006 Credit Agreement. It has not paid cash dividends on common stock since its 1973 IPO and is constrained by its senior credit facility from paying them. The board authorized up to $500 million in share repurchases in February 2007, and the company repurchased 2,457,200 Class A shares for $55.1 million between fiscal year-end and April 27, 2007.

02—Key points

Key Highlights

Net sales rose 13% to $5,216.4 million in Fiscal 2007, led by $405.8 million from the Vincor acquisition and a $95.7 million constant-currency increase in base branded wine sales.
Operating income increased 5% to $699.0 million; net income grew 2% to $331.9 million, held back by higher interest expense of $268.7 million (up 41.7%) and a higher effective tax rate of 38.0%.
Total debt increased to $4,185.5 million, and the debt-to-total-capitalization ratio rose to 55.1% from 48.6% after financing the Vincor acquisition.
Crown Imports (January 2, 2007) and Matthew Clark (April 17, 2007) joint ventures moved imported beer and U.K. wholesale results to the equity method; Crown Imports' equity earnings were $38.9 million in Fiscal 2007.
Planned reduction of U.S. distributor wine inventories in Fiscal 2008 is expected to cut net sales by $160 million to $190 million and diluted EPS by $0.15 to $0.20.
The company acquired the SVEDKA Vodka brand in March 2007 for $383.7 million, net of cash acquired, adding to its premium spirits portfolio.
The board authorized up to $500 million in share repurchases; the company repurchased 2,457,200 Class A shares for $55.1 million through April 27, 2007.

03—Questions

Frequently Asked Questions

How did Constellation Brands perform financially in Fiscal 2007?
Net sales grew 13% to $5,216.4 million and operating income rose 5% to $699.0 million. Net income increased 2% to $331.9 million, and diluted Class A EPS was $1.38 compared with $1.36 in Fiscal 2006. Higher interest expense and a higher effective tax rate of 38.0% limited the net income growth.
Why did interest expense increase so much?
Net interest expense rose 41.7% to $268.7 million, primarily because of higher average borrowings used to finance the Vincor acquisition, along with higher average interest rates. Total debt reached $4,185.5 million at February 28, 2007, up $1,375.7 million from the prior year.
What are the Crown Imports and Matthew Clark joint ventures?
Crown Imports, formed January 2, 2007 with Modelo, imports and markets the Modelo Brands and other imported beers in the U.S. Matthew Clark, formed April 17, 2007 with Punch Taverns, owns the U.K. wholesale business in which each party holds a 50% interest. The company deconsolidated both businesses and now accounts for them under the equity method, and received $178.8 million of cash proceeds from the Matthew Clark formation.
What guidance did management give for Fiscal 2008?
Management plans to reduce distributor wine inventory levels in the U.S. during the first half of Fiscal 2008. This is expected to reduce net sales by $160 million to $190 million and reduce diluted EPS by $0.15 to $0.20. The company also expects Fiscal 2008 restructuring charges of $4.5 million and acquisition-related integration costs of $10.2 million.
Does Constellation Brands pay dividends or buy back stock?
The company has not paid cash dividends on its common stock since its 1973 IPO and intends to retain earnings, and its senior credit facility currently restricts cash dividends. In Fiscal 2007 it repurchased 3,894,978 Class A shares for $100.0 million. In February 2007 the board authorized up to $500 million of additional repurchases, and 2,457,200 shares were bought for $55.1 million through April 27, 2007.

04—Continue

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