01—Abstract
Summary
Summary of the 10-K filed April 23, 2019. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported net sales of $8,116.0 milliona for fiscal 2019 (year ended February 28, 2019), up from $7,580.3 million in fiscal 2018, with Beer net sales of $5,202.1 million (64.1% of net sales) and Wine and Spirits net sales of $2,913.9 million (35.9%).
Operating income rose to $2,412.2 millionb from $2,279.8 million. The largest driver of net income was the Canopy investment: income from unconsolidated investments was $2,101.6 million, including an unrealized net gain of $1,971.2 million on securities measured at fair value, and net income attributable to CBI increased to $3,435.9 million from $2,303.4 million. Diluted net income per Class A share was $17.57, compared with $11.47 in the prior year.
The company is also reshaping its portfolio and balance sheet. In April 2019 it agreed to sell a portion of its wine and spirits business, including approximately 30 lower-margin, lower-growth brands, for approximately $1.7 billionc, with proceeds primarily used to reduce borrowings. The November 2018 Canopy Transaction, for C$5,078.7 million (or $3,869.9 million), increased total debt to $13,616.5 million, up $3,429.8 million, and the company expects to return to its targeted leverage ratio within 24 months.
Beer capacity expansion continues, with about $3.5 billiond invested in the Mexico Beer Expansion Projects since June 2013 and fiscal 2020 capital expenditures planned at $800.0 million to $900.0 million. Investors should note that the Ballast Point craft beer trademark was impaired by $108.0 million in the fourth quarter of fiscal 2019, and that the Sands family holds a majority of combined voting power through Class B shares. The company also expects its fiscal 2020 effective tax rate to be in the range of 16% to 18%.
02—Key points
Key Highlights
- Net sales rose to $8,116.0 million from $7,580.3 million, with Beer net sales of $5,202.1 million up 12% and Wine and Spirits flat at $2,913.9 million.
- Operating income increased to $2,412.2 million from $2,279.8 million, driven by Beer volume growth and pricing in the Mexican beer portfolio.
- Income from unconsolidated investments of $2,101.6 million included a $1,971.2 million unrealized gain on Canopy securities measured at fair value.
- Net income attributable to CBI was $3,435.9 million, versus $2,303.4 million in fiscal 2018; diluted Class A EPS was $17.57 versus $11.47.
- Total debt rose to $13,616.5 million, up $3,429.8 million, mainly due to financing of the November 2018 Canopy Transaction.
- In April 2019 the company agreed to sell about 30 lower-margin wine and spirits brands and related assets for approximately $1.7 billion, expected to close around the end of the first quarter of fiscal 2020.
- A $108.0 million trademark impairment was recorded on the Ballast Point craft beer trademark in the fourth quarter of fiscal 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Constellation Brands kept $0.42.
- Revenue$8.12B100.0%
- Cost of revenue−$4.04B49.7%
- Gross profit$4.08B50.3%
- Operating costs−$1.67B20.6%
- Operating income$2.41B29.7%
- Interest, other & tax$1.02B12.6%
- Net income$3.44B42.3%
Where FY2019 revenue went
$8.12B- Cost of revenue: $4.04B, 50% of revenue
- Operating income: $2.41B, 30% of revenue
- SG&A: $1.67B, 21% of revenue
Kept 30% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed April 23, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $8.12B$7.58B | +7.1% |
| Cost of Revenue | $4.04B$3.77B | +7.1% |
| Gross Profit | $4.08B$3.81B | +7.0% |
| SG&A Expenses | $1.67B$1.53B | +8.8% |
| Operating Income | $2.41B$2.28B | +5.8% |
| Interest Expense | $379.10M$334.30M | +13.4% |
| Net Income | $3.44B$2.30B | +49.2% |
05—Questions
Frequently Asked Questions
What drove the increase in net income attributable to CBI in fiscal 2019?
Net income attributable to CBI increased to $3,435.9 million from $2,303.4 million, largely due to higher income from unconsolidated investments, which reached $2,101.6 million including a $1,971.2 million unrealized net gain on Canopy securities measured at fair value. Beer segment operating income also added $202.7 million, partly offset by a higher provision for income taxes of $685.9 million.
What is the Wine and Spirits Transaction?
In April 2019, the company entered into a definitive agreement to sell a portion of its wine and spirits business, including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices and facilities, for approximately $1.7 billion, subject to certain closing adjustments. The company expects to use the net proceeds primarily to reduce outstanding borrowings and expects the transaction to close around the end of the first quarter of fiscal 2020.
How did the November 2018 Canopy Transaction affect the company's balance sheet?
The November 2018 Canopy Transaction was completed for C$5,078.7 million, or $3,869.9 million. It was financed with $2,150.0 million of October 2018 Senior Notes, $1,500.0 million of term loans, and commercial paper borrowings. Total debt outstanding rose to $13,616.5 million as of February 28, 2019, and equity method investments reached $3,465.6 million.
What are the company's capital expenditure plans?
During fiscal 2019 the company incurred $886.3 million of capital expenditures, including $720.0 million for the Beer segment. For fiscal 2020 it plans to spend between $800.0 million and $900.0 million, including approximately $750.0 million for the Beer segment, mainly for the Mexico Beer Expansion Projects, which are expected to be completed over the next four fiscal years.
Who controls voting power at the company?
The Sands family, directly or through entities it controls, principally holds the Class B Common Stock, which carries 10 votes per share. The filing states that the Sands family's ownership represents a majority of the combined voting power of all classes of common stock as of April 17, 2019, allowing it to elect a majority of directors and approve matters requiring stockholder approval.
06—Continue