Battered by elevated grape costs and higher operating
Constellation Brands Inc.
) posted a year-over-year decline of 5.0% in its first-quarter
fiscal 2014 earnings per share, which came in at 38 cents.
Moreover, quarterly earnings missed the Zacks Consensus Estimate
of 41 cents per share.
On a reported basis, the company registered earnings of 27
cents per share compared with 38 cents in the comparable year-ago
Net sales in the quarter increased 6.1% to $673.4 million from
the year-ago quarter. On an organic basis, the company's wine and
spirits sales rose 4% year over year. Net sales gained on the
back of higher volumes and better product mix in the wine and
spirits business, coupled with the benefits of the Mark West
acquisition. However, quarterly net sales missed the Zacks
Consensus Estimate of $751.0 million.
Cost and Margin Performance
Cost of products sold escalated 8.6% year over year to $417.3
million in the quarter and based on net sales, it expanded 150
basis points (bps) to 62.0%, primarily due to higher grape costs.
Consequently, adjusted gross profit margin contracted 130 bps to
38.3%. However, adjusted gross profit increased 2.3% to $257.6
Adjusted selling, general and administrative (SG&A)
expenses augmented 26.2% to $154.0 million in the quarter. Based
on sales, it increased 370 bps to 22.9% from the comparable
prior-year quarter. Due to increased grape costs and higher
operating expenses, Constellation Brands' adjusted operating
income decreased 5.5% to $103.6 million from $109.6 million in
the year-ago quarter. Adjusted operating margin contracted 190
bps to 15.4%.
Including equity earnings from its 50% interest in the Crown
joint venture, the company reported adjusted earnings before
interest and tax (EBIT) of $170.3 million, almost flat with the
During the quarter, the company's interest expense soared 8.0%
to $54.8 million, primarily driven by escalated average
Constellation Brands, which competes with
Companhia de Bebidas Das Americas
Molson Coors Brewing Company
) ended the quarter with cash and cash investments of $609.3
million. During the quarter, Constellation Brands generated $3.3
million of cash from operations compared with $96.4 million at
the end of first quarter of fiscal 2013. Through the same time
period, the company utilizes $19.0 million of its free cash flow
compared with the generation of $77.0 million in the prior-year
Fiscal 2014 Outlook
Considering the positive impact from the recent acquisition of
Grupo Modelo, management raised its guidance for fiscal 2014.
Constellation Brands now expects fiscal 2014 adjusted earnings to
come in the range of $2.60-$2.90 per share, compared with
$2.55-$2.85 projected earlier. On a reported basis, earnings per
share in fiscal 2014 are now anticipated in the $2.32-$2.62 per
share range, up from the previous guidance of $2.29-$2.59.
Certain factors were considered before providing the guidance,
such as an interest expense expectation in the range of
approximately $325-$335 million, an approximate tax rate of 37%
and weighted average diluted shares outstanding of approximately
Constellation Brands, which currently carries a Zacks Rank #3
(Hold), is expected to incur capital expenditures to the tune of
$200-$230 million, including about $120-$140 million for the
expansion of the Piedras Negras brewery. Moreover, the company
anticipates generating free cash flow in the range of $475-$575
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