STZ's EPS Up, Posts Record FCF - Analyst Blog

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Leading wine and spirits distributor Constellation Brands Inc. ( STZ ) delivered an adjusted EPS of 69 cents per share in the fourth quarter of fiscal 2012, surpassing the Zacks Consensus Estimate of 38 cents and surged nearly two-folds from the prior-year earnings of 35 cents. The year-over-year increase in the bottom line was primarily driven by benefits from negative tax rates and improved margins.

Sales in the quarter dropped 12.2% to $628.1 million from the year-ago quarter. The fall was due to the divestitures of the Australian and U.K. wine businesses, partially offset by improved sales at North American business. Sales also missed the Zacks Consensus forecast of $633 million. The company's North American organic constant currency net sales increased 5% driven by improved volume and favorable product mix.

Cost and Margin Performance 

Adjusted cost of products sold decreased 17% year over year to $382.1 million in the quarter, and based on revenues; it decreased 360 basis points to 60.8%. Consequently, adjusted gross profit declined 3% to $246 million and gross margin increased 360 basis points to 39.2%.

Adjusted selling, general and administrative expenses declined 19% to $122.9 million in the quarter, and based on revenues, it decreased 150 basis points to 19.6% from the prior-year quarter. Constellation Brands' adjusted operating income improved 19% to $123.1 million from $103.7 million in the year-ago quarter due to higher volume in North America and lower corporate expenses. Consequently, operating margin expanded 510 basis points to 19.6%.

Financial Position

Constellation Brands' cash and cash equivalents as of February 29, 2012 was $85.8 million. During fiscal 2012, Constellation generated $784.1 million of cash from operations compared with $619.7 million in the previous year.

During fiscal 2012, the company achieved a record free cash flow of $715.7 million. This enabled the company to reduce debt, fund stock repurchases and acquisitions.

During the fiscal year, the company repurchased 21.2 million shares of common stock at a cost of $414 million under its ongoing $500 million share repurchase program. Moreover, from the beginning of fiscal 2013 through March 31, 2012, the company repurchased 2.1 million shares for a sum of $46 million, summing up to a total share repurchase of 23.3 million shares at a cost of $460 million.

The company's board of directors has announced a new $1 billion share repurchase program to be completed within two-years from now. Constellation Brands is expecting to complete at least 50% of the new authorization in fiscal 2013.

Fiscal 2013 Outlook

The company expects its fiscal 2013 adjusted EPS in the band of $1.93 to $2.03 per share compared with $2.34 in fiscal 2012. The guidance factors in an interest expense expectation in the range of approximately $210-$220 million, an approximate tax rate of 34% and weighted average diluted shares outstanding of approximately 185-190 million.

On a reported basis, the company expects EPS in the range of $1.89-$1.99 per share compared with $2.13 in fiscal 2012.

Moreover, the company anticipates generating a free cash flow in the range of $425 million to $475 million.

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 #2 Rank (short-term Buy rating) on the stock. Our long-term recommendation on the stock remains Neutral.


 
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CONSTELLATN BRD ( STZ ): Free Stock Analysis Report
 

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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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