01—Abstract
Summary
Summary of the 10-Q filed October 5, 2023. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported net sales of $2,836.8 milliona for the three months ended August 31, 2023, and $5,351.7 million for the six months, with net sales increasing 7% for both periods, largely due to higher Beer net sales driven by shipment volume growth and favorable pricing.
Operating income rose 20% to $978.7 millionb in the quarter and 7% to $1,743.4 million for the six months. Net income attributable to CBI was $690.0 million for the quarter and $825.9 million for the six months, compared with net losses of $(1,151.2) million and $(761.7) million in the prior-year periods, which were driven mainly by impairments of the Canopy Equity Method Investment. Equity method impairments and Canopy-related losses were much smaller in the current year, with a $135.8 million impairment of equity method investments in the six months, and the Canopy Equity Method Investment carrying value fell to $134.8 million from $485.8 million at February 28, 2023.
Beer segment net sales were $2,392.7 millionc for the quarter, up 12%, with Mexican beer shipment volume growth of $188.2 million and pricing contributing $59.3 million. Wine and Spirits net sales declined 14% in the quarter to $444.1 million, reflecting lower branded shipment volume, primarily in lower-end brands, and the Wine Divestiture. Cash provided by operating activities was $1,622.0 million for the six months, versus $1,654.3 million a year earlier, while capital expenditures rose to $582.0 million from $435.0 million, largely related to the Mexico Beer Projects.
Total debt was $11,706.5 milliond at August 31, 2023, down $754.8 million from February 28, 2023, and the company declared a quarterly dividend of $0.89 per Class A share on October 4, 2023. The filing also highlights pending risks, including a Canopy Transaction that would change the company's Canopy stake and accounting, a trademark appeal by Cervecería Modelo de México in the Second Circuit following a March 2023 jury verdict in the company's favor, and a possible sale of the remaining assets at the canceled Mexicali Brewery, with no assurance of success. The company expects its Fiscal 2024 effective tax rate to be in the range of 19% to 21%, excluding future Canopy equity in earnings or losses.
02—Key points
Key Highlights
- Net sales rose 7% to $2,836.8 million in the quarter and $5,351.7 million for the six months, driven mainly by Beer net sales growth.
- Operating income increased 20% to $978.7 million for the quarter, reflecting Beer segment shipment volume growth and favorable pricing, and the absence of Reclassification costs from the prior year.
- Net income attributable to CBI was $825.9 million for the six months, compared with a loss of $(761.7) million a year earlier, mainly due to lower Canopy-related impairments and equity losses.
- Canopy Equity Method Investment was written down by $123.5 million in the six months ended August 31, 2023, and its carrying value was $134.8 million at August 31, 2023, down from $485.8 million at February 28, 2023.
- Beer segment net sales increased 12% in the quarter to $2,392.7 million, while Wine and Spirits net sales declined 14% to $444.1 million.
- Cash flow from operations was $1,622.0 million for the six months, while capital expenditures increased to $582.0 million, largely related to the Mexico Beer Projects.
- Total debt decreased $754.8 million to $11,706.5 million from February 28, 2023, and the Board declared a $0.89 per share quarterly dividend on Class A Stock on October 4, 2023.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Constellation Brands kept $0.24.
- Revenue$2.84B100.0%
- Cost of revenue−$1.39B48.9%
- Gross profit$1.45B51.1%
- Operating costs−$471.2M16.6%
- Operating income$978.7M34.5%
- Interest, other & tax−$288.7M10.2%
- Net income$690.0M24.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed October 5, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $2.84B$2.66B | +6.8% |
| Cost of Revenue | $1.39B$1.33B | +4.3% |
| Gross Profit | $1.45B$1.33B | +9.4% |
| SG&A Expenses | $471.20M$512.80M | −8.1% |
| Operating Income | $978.70M$813.10M | +20.4% |
| Net Income | $690.00M-$1.15B | +159.9% |
05—Questions
Frequently Asked Questions
Why did net income swing from a loss to a profit compared with the prior year?
The prior-year period included large impairments of the Canopy Equity Method Investment, which totaled $1,060.3 million for the six months ended August 31, 2022. In the current year, the impairment of equity method investments was $135.8 million for the six months, and equity in losses from Canopy decreased to $(231.8) million from $(815.7) million. Net income attributable to CBI was $825.9 million for the six months, compared with $(761.7) million a year earlier.
What drove growth in the Beer segment?
Beer net sales increased 12% in the quarter to $2,392.7 million, driven by $188.2 million of shipment volume growth within the Mexican beer portfolio, $59.3 million of favorable pricing in select markets, and $8.5 million of favorable product mix. Beer segment operating income rose to $953.9 million for the quarter from $865.6 million, although higher material costs partially offset these gains.
What pressures did the Wine and Spirits segment face?
Wine and Spirits net sales declined 14% to $444.1 million in the quarter, including $14.4 million from the Wine Divestiture. The organic decline was driven by a $73.6 million decrease in branded wine and spirits shipment volume, mainly from declines in the U.S. wholesale market for lower-end brands, partially offset by favorable product mix and pricing.
What is the status of the Canopy investment and the planned Canopy Transaction?
The company holds a Canopy Equity Method Investment of 171.5 million Canopy common shares, carried at $134.8 million as of August 31, 2023. The company has consented to the Canopy Transaction and agreed to vote in favor of the Canopy Amendment. If the transaction completes and the company elects to convert its shares into Exchangeable Shares, it expects to stop applying the equity method and instead account for the investment at fair value. Canopy has disclosed substantial doubt about its ability to continue as a going concern.
What are the main risks and pending matters disclosed in the filing?
The filing discloses a trademark lawsuit in which Cervecería Modelo de México filed an appeal to the U.S. Court of Appeals for the Second Circuit after a March 2023 jury verdict in the company's favor, with the company's response brief due by November 21, 2023. It also notes the company is pursuing a sale of the remaining assets at the canceled Mexicali Brewery but may not succeed. The company expects its Fiscal 2024 effective tax rate to be between 19% and 21%, and it notes that inflation, supply chain constraints, and severe weather could materially affect results.
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