01—Abstract
Summary
Summary of the 10-K filed April 29, 2014. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. (STZ) reported fiscal 2014 (year ended February 28, 2014) net sales of $4,867.7 milliona, up from $2,796.1 million in fiscal 2013, driven primarily by the Beer Business Acquisition completed June 7, 2013, which contributed $2,022.2 million of net sales.
Net sales increased 74%. Net income rose to $1,943.1 millionb from $387.8 million, largely due to a nontaxable $1,642.0 million gain on remeasurement of the company's preexisting 50% interest in Crown Imports, partially offset by a $300.9 million impairment of goodwill and intangible assets in the Wine and Spirits segment's Canadian business. Diluted Class A earnings per share were $9.83, versus $2.04 a year earlier.
The Beer Business Acquisition had an aggregate purchase price of $5,226.4 millionc and made the company the third-largest U.S. beer brewer and the largest multi-category supplier of beverage alcohol in the U.S. The filing notes a required Brewery expansion to 20 million hectoliters by December 31, 2016, with total spend estimated at $900 million to $1.1 billion, and a three-year interim supply agreement with Anheuser-Busch InBev whose extension beyond three years requires U.S. Department of Justice approval. Total debt rose to $7,020.5 million from roughly $3,305 million a year earlier, funded largely by new senior notes and term loans, and cash and cash investments fell to $63.9 million. The filing also indicates an expected effective tax rate of 30% to 32% for each of the next three fiscal years, and a Wine and Spirits net sales outlook for the first quarter of fiscal 2015 calling for a low-to-mid single-digit percent decrease as a distributor reduces inventory.
02—Key points
Key Highlights
- Consolidated net sales rose 74% to $4,867.7 million, primarily from $2,022.2 million of net sales from the acquired Beer business.
- Operating income increased to $2,437.7 million, including a $1,642.0 million nontaxable gain on remeasuring the preexisting 50% interest in Crown Imports and a $300.9 million impairment of goodwill and intangibles in Canada.
- Net income increased to $1,943.1 million from $387.8 million; diluted Class A EPS was $9.83 versus $2.04.
- Beer segment net sales grew 10% to $2,835.6 million, with Depletion Volume Growth of 7.6%; Wine and Spirits net sales increased 2% to $2,845.5 million.
- Total debt increased to $7,020.5 million from $3,305.4 million in long-term debt, reflecting $3,725.0 million of new debt proceeds used largely for the $5,226.4 million Beer Business Acquisition.
- The Brewery in Nava, Mexico, must expand from 10 to 20 million hectoliters by December 31, 2016, with estimated spend of $900 million to $1.1 billion; the Brewery currently covers about 55% of Mexican Beer Brands requirements.
- Effective tax rate fell to 11.8% from 24.9%, and the company expects 30% to 32% for each of the next three fiscal years.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Constellation Brands kept $0.36.
- Revenue$5.41B100.0%
- Cost of revenue−$3.42B63.2%
- Gross profit$1.99B36.8%
- Operating costs$446.0M8.2%
- Operating income$2.44B45.1%
- Interest, other & tax−$494.6M9.1%
- Net income$1.94B35.9%
04—Financials
Financial Highlights
Figures from 10-KFY2014filed April 29, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $5.41B$3.17B | +70.6% |
| Cost of Revenue | $2.88B$1.69B | +70.4% |
| Gross Profit | $1.99B$1.11B | +79.7% |
| SG&A Expenses | $895.10M$585.40M | +52.9% |
| Operating Income | $2.44B$522.90M | +366.2% |
| Interest Expense | $330.90M$233.90M | +41.5% |
| Net Income | $1.94B$387.80M | +401.1% |
05—Questions
Frequently Asked Questions
What drove the large increase in net sales and net income in fiscal 2014?
Net sales rose to $4,867.7 million from $2,796.1 million, mainly because of $2,022.2 million of net sales from the Beer Business Acquisition completed June 7, 2013. Net income rose to $1,943.1 million, primarily due to a $1,642.0 million nontaxable gain on remeasurement of the preexisting 50% interest in Crown Imports, partly offset by a $300.9 million impairment charge in the Wine and Spirits segment's Canadian business.
What was the Beer Business Acquisition and how was it financed?
The company acquired the remaining 50% interest in Crown Imports, a Brewery in Nava, Mexico, and exclusive perpetual rights to import and sell Corona and other Mexican Beer Brands in the U.S., for an aggregate purchase price of $5,226.4 million. It was financed with $1,550.0 million of May 2013 Senior Notes, $1,500.0 million of European term loans, $675.0 million of U.S. Term A-2 loans, $580.0 million of revolver borrowings, $208.0 million of receivables securitization borrowings, and about $232.0 million of cash on hand.
What are the main risks tied to the Mexican beer supply?
The Brewery currently can fill about 55% of projected Mexican Beer Brands requirements and is a single facility. The company relies on an interim supply agreement with Anheuser-Busch InBev through calendar 2016, and the U.S. Department of Justice has approval rights over any extension beyond three years. If the Brewery expansion is not completed within three years, supply may be insufficient, and a significant disruption could impair timely shipments.
How did the company's debt and liquidity change?
Total debt outstanding was $7,020.5 million at February 28, 2014, up $3,715.1 million from a year earlier, largely from the May 2013 Senior Notes and 2013 Credit Agreement term loans. Cash and cash investments decreased to $63.9 million from $331.5 million. As of April 22, 2014, $835.2 million was available under the 2013 Credit Agreement's revolver.
What is the outlook for the Wine and Spirits business and tax rate?
For the first quarter of fiscal 2015, the company expects a low-to-mid single-digit percent decrease in Wine and Spirits net sales compared with the first quarter of fiscal 2014, as one exclusive distributor reduces inventory. Gross profit is not expected to be significantly affected because the distributor must pay an amount approximately equal to the lost profit. The company expects an effective tax rate of 30% to 32% for each of the next three fiscal years, primarily attributable to the Beer Business Acquisition.
06—Continue