Driven by consolidation of the company's newly acquired Crown
Constellation Brands Inc.
) posted a year-over-year rise of 35.2% in its second-quarter
fiscal 2014 adjusted earnings per share, which came in at 96
cents. Moreover, quarterly earnings surpassed the Zacks Consensus
Estimate of 89 cents per share.
On a reported basis, the company registered earnings of $7.74
per share compared with 67 cents in the comparable year-ago
Net sales in the quarter rose over twofold year over year to
$1,459.8 million. The year-over-year increase in top line was
primarily attributable to the full consolidation of Crown Import
business. The company's beer segment revenues increased 3.4% to
$815.0 million from $788.0 million in the comparable year-ago
However, on an organic basis, the company's wine and spirits
sales dropped 1.0% year over year as increased promotional
expenses and lower spirits volume more than offset the benefit of
volume growth of wine.
Cost and Margin Performance
Adjusted cost of products sold rose over twofold year over
year to $871.2 million in the quarter primarily due to inclusion
of newly acquired businesses. Consequently, adjusted gross profit
for the quarter also rose two fold to $588.6 million.
However, based on net sales, adjusted cost of product sold
expanded 70 basis points (bps) to 59.7%, primarily due to decline
in wine and spirits gross profit resulting from higher grape
costs and shift in the timing of shipments. Consequently,
adjusted gross profit margin contracted 70 bps to 40.3%.
Adjusted selling, general and administrative (SG&A)
expenses surged 62.1% to $236.7 million in the quarter. Based on
sales, it contracted 470 bps to 16.2% from the comparable
prior-year quarter on the back of effective cost management.
Due to consolidation of newly acquired businesses,
Constellation Brands' adjusted operating income increased more
than two fold to $351.9 million from $140.6 million in the
year-ago quarter. Adjusted operating margin expanded 400 bps to
24.1% as the benefit of leveraged SG&A expenses were
partially offset by reduced gross profit margin.
During the quarter, the company's interest expense rose nearly
65.4% to $90.3 million, primarily due to increased average
borrowings to finance beer business, partially offset by lower
average interest rate.
Constellation Brands, which competes with
Companhia de Bebidas Das Americas
Molson Coors Brewing Company
) ended the quarter with cash and cash investments of $116.8
million. During the first half of fiscal 2014, Constellation
Brands generated $489.0 million of cash from operations. Through
the same time period, the company generated $440.0 million of
free cash flow compared with $333.0 million in the prior-year
Fiscal 2014 Outlook
Considering the positive impact from the recent acquisition of
Grupo Modelo and strong second-quarter results, management raised
its guidance for fiscal 2014. Constellation Brands now expects
fiscal 2014 adjusted earnings to come in the range of $2.80-$3.10
per share, compared with $2.60-$2.90 projected earlier. On a
reported basis, earnings per share in fiscal 2014 are now
anticipated to be in the range of $9.30-$9.60.
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 32%
and weighted average diluted shares outstanding of approximately
Constellation Brands, which currently carries a Zacks Rank #2
(Buy), is expected to incur capital expenditures in the band of
$200-$230 million. Moreover, the company hopes to generate free
cash flow in the range of $475-$575 million.
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