Leading wine and spirits distributor,
Constellation Brands Inc.
) delivered adjusted earnings of 71 cents per share in the second
quarter of fiscal 2013, surpassing the Zacks Consensus Estimate of
54 cents but falling short of the prior-year period earnings of 77
cents. On a reported basis, the company registered earnings of 67
cents per share.
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Net sales in the quarter increased 1% to $698.5 million from the
year-ago quarter. However, sales missed the Zacks Consensus
Estimate of $710 million. On an organic basis, the company's wine
and spirits sales remained almost flat with the year-ago quarter.
Net sales gained on account of higher volumes offset in part by
elevated promotional costs.
Cost and Margin Performance
Cost of products sold escalated 1.5% year over year to $413.4
million in the quarter, and based on revenues, it expanded by 20
basis points to 59.2%. Adjusted gross profit inched up 1.2% to
$286.6 million, while gross margin remained flat compared with the
prior-year quarter at 41%.
Selling, general and administrative expenses increased 11.6% to
$154.3 million in the quarter, and based on sales, it increased 210
basis points to 22.1% from the prior-year quarter, primarily due to
increased promotional and marketing expenses to support innovation
initiatives at the company's U.S. wine and spirits business.
As a result, Constellation Brands' adjusted earnings before
interest and taxes (EBIT) declined marginally to $211.1 million
from $212.6 million in the year-ago quarter, leading to a
contraction of 60 basis points in EBIT margin to 30.2%.
During the quarter, the company's interest expense rose 28% to $55
million, primarily driven by the shooting up of the company's
average borrowings as well as increased average interest rates.
Effective tax rate in the quarter was 16.3% versus 3.1% in the
Constellation Brands' cash and cash equivalents as of August 31,
2012 was $178.5 million. During the six months of fiscal 2013,
Constellation generated $368.5 million of cash from operations
compared with $517.4 million in the previous year. Through the
first half of fiscal 2013, the company generated a free cash flow
of $333 million compared with $478 million reported in the
Fiscal 2013 Outlook
Constellation Brands updated its fiscal 2013 guidance to now
project adjusted earnings per share guidance in the band of $2.00
to $2.10 per share compared with $2.34 in fiscal 2012. The guidance
factors in an interest expense expectation in the range of
approximately $225-$235 million, an approximate tax rate of 30% and
weighted average diluted shares outstanding of approximately 190
million. Moreover, the company anticipates generating a free cash
flow in the range of $450 million to $500 million.
On a reported basis, the company expects earnings per share in the
range of $1.87-$1.97 per share compared with $2.13 in fiscal 2012.
Constellation Brands is the largest wine company in the world with
a strong portfolio of premium wine brands complemented by spirits,
imported beer and other select beverage alcohol products.
Constellation Brands competes with
) and privately held E. & J. Gallo Winery and Jackson Family
We currently have a Zacks #3 Rank (short-term Hold rating) on the
stock. Our long-term recommendation on the stock remains