01—Abstract
Summary
Summary of the 10-K filed April 29, 2010. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. (STZ) reported net sales of $3,364.8 milliona for the fiscal year ended February 28, 2010 (Fiscal 2010), down from $3,654.6 million in Fiscal 2009, a decrease of $289.8 million, or (8%).
The decline was driven mainly by the divestiture of the value spirits business, a decrease in U.S. branded wine net sales of $87.2 millionb tied to a fourth-quarter decision to reduce distributor inventory levels, and an unfavorable foreign currency translation impact of $74.1 million. Operating income rose to $311.5 million from $29.6 million, primarily because unusual items fell, including lower impairment losses ($103.2 million versus $300.4 million). Net income improved to $99.3 million from a net loss of $301.4 million in the prior year.
Balance sheet deleveraging was a key theme. Total debt outstanding fell to $3,835.5 millionc, a decrease of $598.1 million, and the debt-to-total-capitalization ratio dropped to 59.8% from 69.9%. Net cash provided by operating activities was $402.5 million, and the company repaid $781.3 million of long-term debt.
Management also flagged continuing pressure in the U.K. and Australian businesses, where a surplus of Australian bulk wine and retail consolidation have contributed to declining gross margins. In April 2010, the Board authorized up to $300.0 milliond in share repurchases, and the company entered into a collared accelerated stock buyback for $300.0 million.
The company's Crown Imports joint venture with Modelo continued to be a significant contributor, with cash distributions of $191.7 million received in Fiscal 2010. Management noted that the wine and spirits business is positioned around premium brands and that it expects to consolidate its U.S. distributor network and implement a new go-to-market strategy in Fiscal 2011, with capital expenditures planned between $110 million and $130 million.
02—Key points
Key Highlights
- Net sales declined 8% to $3,364.8 million, reflecting divestitures (value spirits), lower U.S. branded wine sales of $87.2 million, and a $74.1 million unfavorable currency impact.
- Operating income increased to $311.5 million from $29.6 million, driven primarily by lower unusual items and impairment losses ($103.2 million in Fiscal 2010 versus $300.4 million in Fiscal 2009).
- Net income swung to $99.3 million from a net loss of $301.4 million; diluted Class A EPS was $0.45 versus $(1.40).
- Total debt was reduced by $598.1 million to $3,835.5 million, and the debt-to-total-capitalization ratio fell to 59.8% from 69.9%.
- Operating cash flow was $402.5 million, and principal payments on long-term debt totaled $781.3 million.
- Management flagged ongoing margin pressure in the U.K. and Australia, citing a surplus of Australian bulk wine and private-label competition from large U.K. retailers.
- The Board authorized up to $300.0 million in share repurchases in April 2010, with a $300.0 million collared accelerated stock buyback executed that month.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Constellation Brands kept $0.02.
- Revenue$4.21B100.0%
- Cost of revenue−$3.07B72.8%
- Gross profit$1.14B27.2%
- Operating costs−$833.3M19.8%
- Operating income$311.5M7.4%
- Interest, other & tax−$212.2M5.0%
- Net income$99.3M2.4%
Where FY2010 revenue went
$4.21B- Cost of revenue: $2.22B, 53% of revenue
- Other operating costs: $999.0M, 24% of revenue
- SG&A: $682.5M, 16% of revenue
- Net income: $99.3M, 2.4% of revenue
- Interest, other & tax: $212.2M, 5.0% of revenue
Kept 2.4% as net incomeNet income $99.3M · 2.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed April 29, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $4.21B$4.72B | −10.8% |
| Cost of Revenue | $2.22B$2.42B | −8.4% |
| Gross Profit | $1.14B$1.23B | −6.9% |
| SG&A Expenses | $682.50M$832.00M | −18.0% |
| Operating Income | $311.50M$29.60M | +952.4% |
| Interest Expense | $265.10M$323.00M | −17.9% |
| Net Income | $99.30M-$301.40M | +132.9% |
05—Questions
Frequently Asked Questions
Why did net sales decline in Fiscal 2010?
Net sales decreased $289.8 million, or 8%, to $3,364.8 million. The main drivers were the divestiture of the value spirits business (spirits net sales fell $194.8 million), a $87.2 million decrease in U.S. branded wine net sales tied to a fourth-quarter decision to reduce distributor inventories, and an unfavorable foreign currency translation impact of $74.1 million.
Why did operating income improve so significantly?
Operating income rose to $311.5 million from $29.6 million, mainly because unusual items declined. Impairment losses fell to $103.2 million from $300.4 million, and inventory write-downs decreased by $92.2 million compared with Fiscal 2009. Those gains were partly offset by lower operating income in the Constellation Wines segment.
How much debt did the company pay down, and where does leverage stand?
Total debt outstanding was $3,835.5 million at February 28, 2010, down $598.1 million from the prior year. The ratio of total debt to total capitalization decreased to 59.8% from 69.9%. The company repaid $781.3 million of long-term debt during the year, funded partly by proceeds from the value spirits and U.K. cider divestitures.
What risks did management highlight for the U.K. and Australian businesses?
Management said intense competition, retail consolidation, and private-label wine in the U.K. have made it difficult to recover duty increases. The Australian bulk wine surplus is expected to persist in the near term, and this, together with foreign exchange volatility and a challenging economy, contributed to declining gross margins in those businesses during Fiscal 2010.
What capital return and investment plans were announced?
In April 2010, the Board authorized repurchases of up to $300.0 million of Class A and Class B common stock, and the company paid $300.0 million under a collared accelerated stock buyback on April 21, 2010. For Fiscal 2011, the company plans capital expenditures of $110 million to $130 million, including amounts for Project Fusion.
06—Continue