Leading wine and spirits distributor
Constellation Brands Inc.
) 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
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
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
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
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
) and privately held E. & J. Gallo Winery and Jackson Family
We currently have a Zacks #2 Rank (short-term Buy rating) on the
stock. Our long-term recommendation on the stock remains
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