01—Abstract
Summary
Summary of the 10-K filed April 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported Fiscal 2017 (year ended February 28, 2017) net sales of $7,331.5 milliona, up 12% from $6,548.4 million in Fiscal 2016, driven by strong consumer demand across both segments and net sales from the acquired Ballast Point, Meiomi and Prisoner brands.
Operating income rose 36% to $2,399.4 millionb, aided by a $262.4 million gain on sale of business from the Canadian Divestiture, while net income attributable to CBI increased 46% to $1,535.1 million, also reflecting an income tax benefit tied to a change in the assertion on indefinite reinvestment of certain foreign earnings. The Beer segment was the main growth engine, with net sales of $4,229.3 million (up 17%) and Mexican beer volume growth of $404.4 million in net sales, while Wine and Spirits net sales rose 6% to $3,102.2 million. Balance sheet leverage increased as total debt reached $9,238.1 million, up $1,156.9 million, while the company repurchased $1,122.7 million of treasury stock and paid higher dividends.
Management plans fiscal 2018 capital expenditures of $1.2 billion to $1.3 billionc, largely for the Mexico Beer Expansion Projects, which are estimated at approximately $3.9 billion in total spend through fiscal 2021, of which about $2.1 billion has been invested. The company expects an effective tax rate of 21% to 23% for the next fiscal year and expects to return approximately $400 million to stockholders through dividends in Fiscal 2018. Key risks for investors include dependence on Mexican beer brands sourced from the Nava and Obregon breweries, which are sole sources of supply, concentration of U.S. wine production in a few facilities, exposure to tariffs and tax changes affecting beverage alcohol, and a Sands family majority of combined voting power.
02—Key points
Key Highlights
- Net sales rose 12% to $7,331.5 million, with Beer net sales up 17% to $4,229.3 million and Wine and Spirits up 6% to $3,102.2 million.
- Operating income increased 36% to $2,399.4 million, including a $262.4 million gain on sale of business from the Canadian Divestiture completed in December 2016.
- Net income attributable to CBI increased 46% to $1,535.1 million, and diluted net income per Class A share was $7.52 versus $5.18 in Fiscal 2016.
- Total debt rose to $9,238.1 million, an increase of $1,156.9 million, while $1,122.7 million was spent on share repurchases during the year.
- Fiscal 2018 capital expenditures are planned at $1.2 billion to $1.3 billion, mainly for the Mexico Beer Expansion Projects, with an estimated total spend of approximately $3.9 billion through fiscal 2021.
- The Obregon Brewery acquisition for $568.7 million, net of cash acquired, made the company fully independent from its interim supply agreement with Modelo.
- The company expects its effective tax rate for the next fiscal year to be in the range of 21% to 23%, and plans to return approximately $400 million to stockholders through dividends in Fiscal 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Constellation Brands kept $0.21.
- Revenue$7.32B100.0%
- Cost of revenue−$3.80B51.9%
- Gross profit$3.52B48.1%
- Operating costs−$1.13B15.4%
- Operating income$2.39B32.6%
- Interest, other & tax−$860.4M11.8%
- Net income$1.53B20.9%
04—Financials
Financial Highlights
Figures from 10-KFY2017filed April 27, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $7.32B$7.22B | +1.3% |
| Cost of Revenue | $3.80B$3.61B | +5.4% |
| Gross Profit | $3.52B$2.94B | +19.6% |
| SG&A Expenses | $1.39B$1.18B | +18.3% |
| Operating Income | $2.39B$1.77B | +35.3% |
| Interest Expense | $335.10M$314.70M | +6.5% |
| Net Income | $1.53B$1.05B | +44.9% |
05—Questions
Frequently Asked Questions
What drove the increase in profitability in Fiscal 2017?
The filing attributes the increase in operating income primarily to the gain on sale of business from the Canadian Divestiture, strong consumer demand across both segments, and benefits from acquired brands. Gross profit as a percent of net sales increased to 48.1% from 44.9%, primarily due to a favorable change in Comparable Adjustments and lower cost of product sold.
How much is the company investing in its Mexico beer operations?
The Mexico Beer Expansion Projects are estimated at approximately $3.9 billion in total spend through fiscal 2021. About $2.1 billion has been invested to date, with approximately $700 million spent during Fiscal 2017. Fiscal 2018 capital expenditures are planned at $1.2 billion to $1.3 billion, including $1.0 billion to $1.1 billion for the Beer segment.
How did the company's debt and capital return change?
Total debt outstanding as of February 28, 2017 was $9,238.1 million, up $1,156.9 million from the prior year, largely from new term loans and the December 2016 Senior Notes. The company repurchased $1,122.7 million of treasury stock in Fiscal 2017 and expects to pay approximately $400 million in dividends in Fiscal 2018.
What are the main concentration risks in the business?
The filing notes that the Nava and Obregon breweries are the sole source of supply for Mexican beer brands, and that a significant disruption at either could impair production. About 80% of total annual wine and spirits volume is produced in the U.S., and three wineries produce about 60% of global wine and spirits volume. The Sands family also holds a majority of combined voting power.
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