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Constellation Brands 8-K Report, Financial Results (Jul 3, 2024)

Reports
Earnings & Results·Regulation FD·Exhibits & Filings
Filing Date
Filed July 3, 2024
Period End
July 2, 2024
Security
STZ
In the record · 2016–202610-K1110-Q338-K237

STZ filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 237 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Sep ’18Sep ’18
  2. Leadership change8-K · Oct ’20Oct ’20
  3. Leadership change8-K · Nov ’22Nov ’22
  4. Material agreement8-K · Sep ’26Sep ’26

01—Abstract

Summary

Summary of the 8-K filed July 3, 2024. Cited figures are marked; the original filing is the authoritative source.

Constellation Brands, Inc. reported results for the first fiscal quarter ended May 31, 2024 (first quarter of fiscal 2025).

Net sales were $2,661.8 milliona, up 6% from $2,514.9 million a year earlier. Reported operating income rose 23% to $941.6 million, and comparable operating income rose 12% to $924.0 million. Reported diluted EPS was $4.78, compared with $0.74 a year earlier, and comparable diluted EPS was $3.57, up 17%.

Net income attributable to CBI was $877.0 millionb. The Beer Business drove the quarter, with net sales up 8% to $2,272.8 million, shipments up 7.6%, and operating margin of 40.6%, up 260 basis points. The Wine and Spirits Business was weaker, with net sales down 7% to $389.0 million, shipments down 5.1%, and operating income down 25% to $59.7 million, with margin of 15.3%.

For fiscal 2025, the company updated its reported EPS outlook to $14.63 to $14.93c and affirmed its comparable EPS outlook of $13.50 to $13.80. It also affirmed its operating cash flow target of $2.8 to $3.0 billion and free cash flow projection of $1.4 to $1.5 billion. The Beer Business expects net sales growth of 7% to 9% and operating income growth of 10% to 12%.

The Wine and Spirits Business expects net sales from a decline of 0.5% to growth of 0.5% and an operating income decline of 9% to 11%. Cash generation was mixed. Operating cash flow was $690.5 milliond, up 4%, while free cash flow was $315.2 million, down 19%, reflecting brewery capacity investments.

Net leverage was 3.1x, and the company continues to target about 3.0x this fiscal year. In the quarter it repurchased $200 million of shares and paid dividends of $185.3 million. The board declared a quarterly dividend of $1.01 per Class A share, payable August 23, 2024.

02—Key points

Key Highlights

  1. Net sales rose 6% to $2,661.8 million; reported operating income rose 23% to $941.6 million and comparable operating income rose 12% to $924.0 million.
  2. Reported diluted EPS was $4.78 (versus $0.74 a year earlier); comparable diluted EPS was $3.57, up 17%.
  3. Beer Business net sales rose 8% to $2,272.8 million, with operating margin up 260 basis points to 40.6%, driven by volume growth and cost savings.
  4. Wine and Spirits net sales fell 7% to $389.0 million and operating income fell 25% to $59.7 million, with the company citing market headwinds in the U.S. wholesale channel.
  5. Reported fiscal 2025 EPS outlook was updated to $14.63 to $14.93, while the comparable EPS outlook of $13.50 to $13.80 was affirmed.
  6. Operating cash flow of $690.5 million (up 4%) and free cash flow of $315.2 million (down 19%); net leverage was 3.1x against a target of about 3.0x.
  7. Returned cash through $200 million of share repurchases in the quarter and a $1.01 per share quarterly Class A dividend, payable August 23, 2024.

03—Questions

Frequently Asked Questions

  1. Why did reported operating income grow much faster than comparable operating income?

    Reported operating income was $941.6 million, up 23%, while comparable operating income was $924.0 million, up 12%. The filing's comparable adjustments removed items affecting comparability, including $22.0 million of gross profit adjustments, mainly from undesignated commodity derivative contracts, and $17.6 million of total operating income adjustments in the quarter. The prior-year comparable figures included larger adjustments, such as $62.5 million of operating income adjustments.

  2. Why did the reported EPS outlook change while the comparable outlook was affirmed?

    The company updated its reported fiscal 2025 EPS outlook to $14.63 to $14.93, while affirming its comparable EPS outlook of $13.50 to $13.80. The filing's reconciliation shows a difference of $1.13 per share in comparable adjustments for fiscal 2025, which includes a net income tax benefit recognized as a result of the resolution of various tax examinations and assessments related to prior periods, estimated at $0.66 per share.

  3. What is driving the weakness in the Wine and Spirits Business?

    The filing attributes the net sales decline of 7% to a 5.1% decrease in shipment volumes, primarily in the U.S. wholesale channel across most price segments in the wine category. Operating margin fell 370 basis points to 15.3%, driven by lower volumes and higher cost of product sold, which more than offset lower other SG&A and marketing expenses. The company says commercial and operational initiatives are underway, and it reaffirmed its fiscal 2025 outlook for this segment.

  4. How is the company spending capital and returning cash to shareholders?

    Capital expenditures were $375.3 million in the quarter. The filing states the company expects approximately $3 billion of capital expenditures from fiscal 2025 to fiscal 2028 for modular additions at existing Mexican facilities and a third brewery site at Veracruz. In the quarter, the company repurchased $200 million of shares and paid $185.3 million in dividends. It returned over $240 million to shareholders in share repurchases through June 2024.

04—Continue

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