Constellation Brands Beats Ests - Analyst Blog

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Leading wine and spirits distributor, Constellation Brands Inc. ( STZ ) 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.

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 year-ago quarter.

Financial Position

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 prior-year period.

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 Beam Inc. ( BEAM ) and privately held E. & J. Gallo Winery and Jackson Family Wines.

We currently have a Zacks #3 Rank (short-term Hold rating) on the stock. Our long-term recommendation on the stock remains Neutral.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BEAM , STZ

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