01—Abstract
Summary
Summary of the 10-K filed April 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported net sales of $7,585.0 milliona for the fiscal year ended February 28, 2018, up from $7,331.5 million in Fiscal 2017.
Beer net sales rose to $4,658.5 millionb, driven by volume growth in the Mexican beer portfolio, while Wine and Spirits net sales declined to $2,926.5 million, largely due to the Canadian Divestiture. Operating income was $2,284.5 million, compared with $2,399.4 million in the prior year, reflecting an unfavorable change in Comparable Adjustments. Net income attributable to CBI was $2,318.9 million, boosted by a $363.0 million provisional net income tax benefit from the TCJ Act and a $452.6 million unrealized gain on the Canopy Growth investment and warrants.
Cash flow from operating activities was $1,931.4 millionc, and capital expenditures were $1,057.6 million, primarily for the Mexico Beer Expansion Projects. Long-term debt including current maturities was $9,439.9 million at year end. The company repurchased $1,038.5 million of treasury stock during the year, and the board authorized a new $3.0 billion repurchase program in January 2018.
Dividends declared were $2.08d per Class A share, and a quarterly dividend increase to $0.74 per Class A share was declared in March 2018. The company also agreed in April 2018 to sell its remaining interest in its previously-owned Australian and European business for approximately $100 million, with an expected gain of about $85 million in the first quarter of Fiscal 2019. Management expects an effective tax rate of 18% to 20% for the next fiscal year.
02—Key points
Key Highlights
- Net sales rose 3% to $7,585.0 million, led by Beer net sales growth of 10% to $4,658.5 million on Mexican beer volume growth.
- Wine and Spirits net sales fell 6% to $2,926.5 million, mainly due to the Canadian Divestiture of $311.2 million in net sales.
- Operating income decreased 5% to $2,284.5 million, largely due to an unfavorable change in Comparable Adjustments, including a $86.8 million trademark impairment and a $59.0 million loss on contract termination.
- Net income attributable to CBI increased 51% to $2,318.9 million, driven largely by the $363.0 million provisional tax benefit from the TCJ Act and a $452.6 million unrealized gain on Canopy investments.
- Operating cash flow increased to $1,931.4 million, and capital expenditures were $1,057.6 million, mainly for the Mexico Beer Expansion Projects.
- Total debt outstanding was $10.2 billion at February 28, 2018, up $948.6 million, and the company repurchased $1,038.5 million of treasury stock during the year.
- A new $3.0 billion share repurchase authorization was approved in January 2018, and the quarterly dividend was increased to $0.74 per Class A share in March 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Constellation Brands kept $0.30.
- Revenue$7.58B100.0%
- Cost of revenue−$3.77B49.7%
- Gross profit$3.81B50.3%
- Operating costs−$1.53B20.2%
- Operating income$2.28B30.1%
- Interest, other & tax$23.6M0.3%
- Net income$2.30B30.4%
Where FY2018 revenue went
$7.58B- Cost of revenue: $3.77B, 50% of revenue
- Operating income: $2.28B, 30% of revenue
- SG&A: $1.53B, 20% of revenue
Kept 30% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed April 23, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.58B$7.32B | +3.5% |
| Cost of Revenue | $3.77B$3.80B | −0.9% |
| Gross Profit | $3.81B$3.52B | +8.3% |
| SG&A Expenses | $1.53B$1.39B | +10.1% |
| Operating Income | $2.28B$2.39B | −4.6% |
| Interest Expense | $334.30M$335.10M | −0.2% |
| Net Income | $2.30B$1.53B | +50.7% |
05—Questions
Frequently Asked Questions
What drove the increase in net income in Fiscal 2018?
Net income attributable to CBI rose to $2,318.9 million from $1,535.1 million, driven largely by a $363.0 million provisional net income tax benefit from the TCJ Act, a $452.6 million unrealized gain on the Canopy Investment and Canopy Warrants, and a $303.9 million increase in Beer segment operating income.
How did the Canadian Divestiture affect results?
The Canadian wine business sale in December 2016 reduced Wine and Spirits net sales by $311.2 million and gross profit by $131.2 million in the comparison, partially offset by acquired brand net sales of $50.4 million and organic growth. Wine and Spirits operating income was roughly flat at $800.7 million.
What is the status of the Mexico Beer Expansion Projects?
The company has invested approximately $2.9 billion in the Mexico Beer Expansion Projects since the acquisition of the imported beer business, including about $800 million in Fiscal 2018. It is targeting an additional 12.5 million hectoliters of capacity to be completed over the next five fiscal years, and expects Fiscal 2019 Beer capital expenditures of $975.0 million to $1.075 billion.
What are the company's capital return plans?
The company repurchased $1,038.5 million of treasury stock in Fiscal 2018 and paid $400.1 million in dividends. Under the 2018 Authorization, $512.8 million had been used as of April 23, 2018, leaving capacity under the $3.0 billion program. The company expects to return approximately $560 million to stockholders in Fiscal 2019 through cash dividends.
What risks does the filing highlight for investors?
The filing highlights dependence on the Nava and Obregon breweries as sole sources of Mexican beer supply, concentration of U.S. wine and spirits production in three wineries producing about 60% of volume, reliance on a limited number of glass suppliers, exposure to tariffs and tax changes, a large amount of goodwill and trademarks subject to impairment, and control of voting power by the Sands family.
06—Continue