01—Abstract
Summary
Summary of the 10-K filed April 21, 2020. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported Fiscal 2020 (year ended February 29, 2020) net sales of $8.34 billiona, up from $8.12 billion in Fiscal 2019, driven by Beer net sales of $5.62 billion, which rose on $330.9 million of Mexican beer volume growth and a $118.4 million favorable pricing impact.
Wine and Spirits net sales fell to $2.73 billionb, reflecting a $193.0 million decline in branded volume and the Black Velvet divestiture. Net income attributable to CBI was $(11.8) million, down sharply from $3,435.9 million in Fiscal 2019, mainly because of an unrealized net loss of $2,126.4 million on Canopy investments, $575.9 million of equity losses from Canopy, and a $449.7 million impairment of assets held for sale tied to planned wine and spirits and Ballast Point divestitures. The company is restructuring its portfolio toward higher-margin, higher-growth brands.
The Revised Wine and Spirits Transaction with E. & J. Gallo Winery has an adjusted price of approximately $843 million plus up to $250 millionc of contingent consideration, and the Nobilo Wine sale is $130 million; management intends to use proceeds primarily to reduce borrowings. The Ballast Point craft beer business was sold in March 2020.
Total debt was $12,184.6 milliond at February 29, 2020, down $1,431.9 million from the prior year, and operating cash flow was $2,551.1 million. The filing also flags COVID-19 as a material uncertainty.
Management said it cannot yet estimate the long-term impact, and it withheld capital expenditure guidance for Fiscal 2021. The company expects an effective tax rate of 17% to 19% for the next fiscal year, and it expects to return approximately $565 million to stockholders through dividends in Fiscal 2021.
02—Key points
Key Highlights
- Net sales rose to $8,343.5 million from $8,116.0 million, with Beer net sales up to $5,615.9 million on $330.9 million of Mexican beer volume growth and $118.4 million of pricing benefit.
- Net income attributable to CBI fell to $(11.8) million from $3,435.9 million, driven by a $2,126.4 million unrealized loss on Canopy securities and $575.9 million of equity losses from Canopy.
- Wine and Spirits net sales declined to $2,727.6 million from $2,913.9 million, with branded wine and spirits volume down $193.0 million.
- Impairment of assets held for sale of $449.7 million was recognized in connection with the New Wine and Spirits, Other Wine and Spirits, and Ballast Point transactions.
- The Revised Wine and Spirits Transaction with E. & J. Gallo has an adjusted price of approximately $843 million plus up to $250 million contingent consideration, and the Nobilo Wine sale is $130 million; proceeds will primarily reduce borrowings.
- Total debt was $12,184.6 million at February 29, 2020, a decrease of $1,431.9 million, and operating cash flow was $2,551.1 million.
- COVID-19 has affected the on-premise business, which the filing says has historically been 10% to 15% of depletion volume, and management cannot yet estimate its long-term impact.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2020, Constellation Brands lost $0.00.
- Revenue$8.34B100.0%
- Cost of revenue−$4.19B50.2%
- Gross profit$4.15B49.8%
- Operating costs−$2.00B23.9%
- Operating income$2.15B25.8%
- Interest, other & tax−$2.17B26.0%
- Net income−$11.8M0.1%
Where FY2020 revenue went
$8.34B- Cost of revenue: $4.19B, 50% of revenue
- Operating income: $2.15B, 26% of revenue
- SG&A: $1.62B, 19% of revenue
- Other operating costs: $375.6M, 4.5% of revenue
Kept 26% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed April 21, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $8.34B$8.12B | +2.8% |
| Cost of Revenue | $4.19B$4.04B | +3.9% |
| Gross Profit | $4.15B$4.08B | +1.8% |
| SG&A Expenses | $1.62B$1.67B | −2.8% |
| Operating Income | $2.15B$2.41B | −10.7% |
| Net Income | -$11.80M$3.44B | −100.3% |
05—Questions
Frequently Asked Questions
Why did net income swing from a $3.4 billion profit to a small loss?
The main driver was Canopy. The company recorded an unrealized net loss of $2,126.4 million on its Canopy investments and $575.9 million of equity losses from Canopy's results. These were partly offset by a $1,176.0 million unrealized gain from the June 2019 Canopy warrant modification. Net income attributable to CBI was also reduced by a $449.7 million impairment of assets held for sale. Fiscal 2019 had benefited from a $1,971.2 million unrealized gain on the same investments.
How is the wine and spirits divestiture expected to affect the company?
The company agreed to sell a portion of its wine and spirits business, including approximately 30 lower-margin brands, to E. & J. Gallo Winery for an adjusted price of about $843 million, plus up to $250 million of contingent consideration. A separate $130 million sale of the Nobilo Wine brand is also planned. The filing says the transactions are expected to reduce the diversification of the portfolio, and management intends to use the proceeds primarily to reduce outstanding borrowings.
What is the company's outlook for COVID-19 and capital spending?
The filing says COVID-19 has reduced depletion volume in the on-premise business, and some breweries and wineries are running at lower production levels than planned. Management said it is not able to estimate the long-term impact on the business, so it did not provide capital expenditure guidance for Fiscal 2021. The company still believes it has sufficient liquidity from operating cash flow, cash on hand, and its $2.0 billion revolving credit facility.
How is the company returning cash to shareholders?
The company declared a quarterly cash dividend of $0.75 per Class A share on April 2, 2020, and expects to return approximately $565 million to stockholders through dividends in Fiscal 2021. Dividends paid in Fiscal 2020 totaled $569.2 million. Share repurchases under the 2018 Authorization were $50.0 million in Fiscal 2020, with $1,954.1 million remaining available.
06—Continue