Constellation Brands Q4 Earnings Beat - Analyst Blog

Driven by the acquisition of Crown Imports business last year, Constellation Brands Inc. STZ posted a year-over-year rise of 72% in its fourth-quarter fiscal 2014 adjusted earnings per share, which came in at 81 cents. Moreover, quarterly earnings surpassed the Zacks Consensus Estimate of 76 cents per share.

On a reported basis, the company registered earnings of 79 cents per share, against 43 cents in the comparable year-ago quarter.

Net sales in the quarter soared 85.5% year over year to $1,291.2 million and came almost in line with the Zacks Consensus Estimate of $1,291.0 million. The year-over-year increase on the top line was primarily attributable to complete consolidation of the Crown Import business as well as the strong demand for beer. The company's beer segment revenues increased 13% to $597.8 million from $528.2 million in the comparable year-ago quarter.

On an organic basis, the company's wine and spirits sales rose 1% year over year as the benefit of volume growth was largely offset by increased promotional expenses and unfavorable mix.

Fiscal 2014 Synopsis

For fiscal 2014, the company's adjusted earnings came at $3.25 per share, up 48% from fiscal 2013 and surpassed the Zacks Consensus Estimate of $3.19 per share. Revenues for the year rose approximately 74% to $4,867.7 million and marginally surpassed the Zacks Consensus Estimate of $4,860.0 million.

Cost and Margin Performance for Q4

Adjusted gross profit for the quarter surged by a whopping 108% year over year to $549.6 million. Consequently, adjusted gross profit margin contracted substantially from 62.1% in the prior-year quarter to 42.6% in fourth-quarter 2014.

Adjusted selling, general and administrative (SG&A) expenses climbed 62.5% to $211.8 million in the quarter. Based on sales, it contracted 230 bps to 16.4% from the comparable prior-year quarter on the back of effective cost management.

Due to consolidation of the newly acquired businesses, Constellation Brands' adjusted operating income increased 83% to $337.8 million from $133.6 million in the year-ago quarter. Adjusted operating margin expanded 700 bps to 26.2%.

During the quarter, the company's interest expense rose nearly 47.0% to $88.5 million, primarily due to increased average borrowings, partially offset by lower interest due to partial debt redemption.

Financial Position

Constellation Brands, which competes with Boston Beer Co. Inc. SAM, Beam Inc. BEAM and Molson Coors Brewing Co. TAP ended the quarter with cash and cash investments of $63.9 million. During fiscal 2014, Constellation Brands generated $826.2 million of cash from operations. As of Feb 28, 2014, the company had $6,373.3 million of long-term debt (excluding current maturities).

Fiscal 2015 Outlook

Following the strong close to fiscal 2014, the company came up with its forecasts for fiscal 2015. Constellation Brands expects fiscal 2015 adjusted earnings to be in the range of $3.95 - $4.15 per share, compared with $3.25 earned in fiscal 2014. On a reported basis, earnings per share in fiscal 2015 are now anticipated to be in the range of $3.75 - $3.95 versus $9.83 reported in fiscal 2014.

Certain factors were considered before providing the earnings guidance, such as an interest expense expectation in the range of $345 - $355 million, an approximate tax rate of 30% and weighted average diluted shares outstanding of approximately 201 million.

Moreover, the company is expected to incur capital expenditures in the band of $575 - $625 million, including $450 - $500 million slated for the beer business. Additionally, the company hopes to generate free cash flow in the range of $425–$500 million.

Coming to the projections for the beer segment, the company anticipates sales growth for the beer segment in the mid-to-high single digit range. Moreover, the company expects adjusted operating income for the beer segment to increase in the 10%-12% range, while on a reported basis including the anticipated brewery acquisition benefit operating income is projected to grow in the low-to-mid 20% range.

On the other hand, sales and operating income for the wine and spirits segment in fiscal 2015 is expected to grow in the low-to-mid single digit range.

Constellation Brands currently carries a Zacks Rank #3 (Hold).