01—Abstract
Summary
Summary of the 10-Q filed October 3, 2024. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported a sharply weaker second quarter and six months of Fiscal 2025 for the period ended August 31, 2024, driven primarily by a $2.25 billiona goodwill impairment in its Wine and Spirits reporting unit.
Net sales for the three months rose to $2,918.9 millionb from $2,836.8 million, with Beer net sales up to $2,530.2 million on 4.6% shipment volume growth, while Wine and Spirits net sales fell 12% to $388.7 million. The company reported a net loss attributable to CBI of $1,199.0 million for the quarter and a net loss of $322.0 million for the six months, compared with net income of $690.0 million and $825.9 million a year earlier. Management attributes the impairment to negative trends in the U.S. wholesale wine market, including declines in the overall wine market and in its mainstream and premium wine brands.
Beer remained the stronger segment: six-month Beer operating income rose to $2,000.7 millionc from $1,751.7 million, supported by shipment volume growth, pricing and cost savings initiatives. Operating cash flow for the six months increased to $1,872.3 million from $1,622.0 million, while cash and cash equivalents fell to $64.6 million and total stockholders' equity declined to $8,155.9 million from $10,064.6 million. Goodwill fell to $5,715.4 million from $7,980.3 million following the impairment and the June 2024 Sea Smoke acquisition, which cost $170.0 million.
On the Canopy investment, the company converted its Canopy common shares and a promissory note into Exchangeable Shares in April 2024, recognizing an $83.3 milliond net gain for the six months. The company repurchased $449.2 million of stock during the six months and declared a quarterly dividend of $1.01 per Class A share on October 1, 2024. Management reported an effective tax rate expectation of 8% to 10% for Fiscal 2025.
02—Key points
Key Highlights
- Net loss attributable to CBI of $1,199.0 million for the three months ended August 31, 2024, versus net income of $690.0 million a year earlier, driven by a $2,250.0 million goodwill impairment in the Wine and Spirits reporting unit.
- Consolidated net sales rose to $2,918.9 million for the quarter from $2,836.8 million, led by Beer net sales of $2,530.2 million, up 6%, while Wine and Spirits net sales declined 12% to $388.7 million.
- Beer shipments grew 4.6% in the quarter and 6.0% for the six months, with segment operating income of $2,000.7 million for the six months versus $1,751.7 million a year earlier.
- Operating cash flow for the six months was $1,872.3 million, up from $1,622.0 million, while cash and cash equivalents decreased to $64.6 million.
- Total stockholders' equity declined to $8,155.9 million from $10,064.6 million, reflecting the net loss, $449.2 million of share repurchases and an accumulated other comprehensive loss of $427.0 million.
- Canopy transactions produced an $83.3 million net gain on conversion and exchange to Exchangeable Shares for the six months, and the company no longer applies the equity method to its Canopy investment.
- Total debt outstanding was $11,596.4 million at August 31, 2024, and the company was in compliance with its covenants under the 2022 Credit Agreement and its indentures.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q2 FY2025, Constellation Brands lost $0.41.
- Revenue$2.92B100.0%
- Cost of revenue−$1.41B48.2%
- Gross profit$1.51B51.8%
- Operating costs−$2.74B93.9%
- Operating income−$1.23B42.1%
- Interest, other & tax$30.4M1.0%
- Net income−$1.20B41.1%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2025filed October 3, 2024Financial Statements
Q2 FY2025 against Q2 FY2024
| Line item | Q2 FY2025Q2 FY2024 | Change |
|---|---|---|
| Revenue | $2.92B$2.84B | +2.9% |
| Cost of Revenue | $1.41B$1.39B | +1.5% |
| Gross Profit | $1.51B$1.45B | +4.3% |
| SG&A Expenses | $491.20M$471.20M | +4.2% |
| Operating Income | -$1.23B$978.70M | −225.6% |
| Net Income | -$1.20B$690.00M | −273.8% |
05—Questions
Frequently Asked Questions
What caused the large swing to a net loss this quarter?
The filing attributes the net loss primarily to a $2,250.0 million goodwill impairment in the Wine and Spirits reporting unit, triggered by negative trends in the U.S. wholesale wine market, including declines in the overall wine market and in the company's mainstream and premium wine brands. Management also noted that the non-deductible portion of the impairment affected income taxes.
How is the Beer business performing?
Beer net sales rose 6% to $2,530.2 million for the quarter, driven by $108.9 million of shipment volume growth and $50.2 million of favorable pricing, partially offset by $21.6 million of unfavorable product mix. Beer gross profit increased 11% to $1,366.4 million and segment operating income rose to $1,077.7 million, with management citing cost savings initiatives, including more than $65 million of savings for the quarter.
What is the status of the Wine and Spirits business and the goodwill remaining on the balance sheet?
Wine and Spirits net sales declined 12% for the quarter to $388.7 million, reflecting lower branded shipment volume and unfavorable product mix. Goodwill for the segment was $564.8 million after the impairment, and the filing states that a future impairment of Wine and Spirits goodwill is reasonably possible if adverse conditions continue. The trademark impairment test concluded that fair values of these intangible assets exceeded their carrying amounts.
What happened with the Canopy investment?
In April 2024 the company converted its 17.1 million Canopy common shares into Exchangeable Shares on a one-for-one basis and exchanged C$81.2 million of its promissory note for 9.1 million Exchangeable Shares. The company now holds 26.3 million Exchangeable Shares, recognized an $83.3 million net gain, and carries them at $97.3 million under the measurement alternative method.
How is the company returning capital and managing its debt?
The company repurchased 1,778,281 Class A shares for $449.2 million during the six months under the 2021 Authorization, leaving $2,164.5 million available under the two authorizations combined. It paid $368.6 million in dividends and declared a quarterly dividend of $1.01 per Class A share on October 1, 2024. Remaining borrowing capacity under the revolving credit facility was $1,729.7 million at August 31, 2024.
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