USA: Constellation Brands’ imported beer business was a phenomenal growth driver in fiscal 2006
Constellation Brands, Inc., a leading international producer and marketer of beverage alcohol, reported on April 6 net sales of $4.6 billion for its fiscal year ended Feb. 28, 2006 ("fiscal 2006"), up 13 percent over prior year. Net sales for fiscal 2006 included $337.5 million of sales for the period March 1, 2005 through Dec. 22, 2005, resulting from the Dec. 22, 2004 acquisition of The Robert Mondavi Corporation ("Robert Mondavi"), and $43.6 million of sales of Ruffino brands for the period March 1, 2005 through Jan. 31, 2006.
Constellation began distributing Ruffino brands in the United States on Feb. 1, 2005. Organic net sales, which exclude net sales of Robert Mondavi and Ruffino brands for these periods, grew three percent, or four percent on a constant currency basis. Growth of branded products in the wine, imported beers and spirits categories, as well as the addition of the higher margin Robert Mondavi brands, drove solid margin expansion. Branded business net sales grew 18 percent, or 19 percent on a constant currency basis, while branded business organic net sales increased six percent.
"Fiscal 2006 was another terrific year for Constellation Brands in which we successfully managed tremendous growth, improved our profitability, increased free cash flow over the prior year and paid down a substantial amount of debt," stated Richard Sands, Constellation Brands chairman and chief executive officer. "We strengthened our branded product portfolio through a combination of new product introductions and value-creating acquisitions, and grew our business in the face of challenging conditions in many of our markets. Our fiscal 2006 results can be attributed to the efforts of our global team, which executed our strategy and achieved results that truly exemplify the benefits and value of the flexible and responsive decentralized structure used to manage our production processes, customer relationships and markets."
Operating income for fiscal 2006, as reported under generally accepted accounting principles ("reported"), totaled $666.1 million, or 14.5 percent of net sales, compared with $567.9 million or 13.9 percent of net sales for fiscal 2005. Reported operating income included $6.4 million of expense related to a United Kingdom (U.K.) pension plan adjustment, and $4.3 million of expenses associated with the company's tender offer for Vincor International Inc. that expired in December 2005, both recorded in the fourth quarter fiscal 2006.
Reported net income for fiscal 2006 increased 18 percent to $325.3 million, while reported diluted earnings per share totaled $1.36, an increase of 14 percent over fiscal 2005. The reported effective tax rate for fiscal 2006 was 31.8 percent compared with 36.0 percent for fiscal 2005.
Fiscal 2006 and 2005 reported results include acquisition-related integration costs, restructuring and related charges and unusual items. Net income and diluted earnings per share, on a comparable basis ("comparable"), exclude these costs, charges and items. Fiscal 2006 operating income, on a comparable basis, was $760.0 million or 16.5 percent of net sales, compared with $626.7 million or 15.3 percent of net sales for the prior year period. On a comparable basis, fiscal 2006 net income and diluted earnings per share increased 21 percent to $379.8 million and 18 percent to $1.59, respectively.
For fiscal 2006, the company generated $436.0 million of net cash provided by operating activities and $303.5 million of free cash flow. The company exited fiscal 2006 with approximately $2.81 billion of debt, which represents a decrease of approximately $480 million from the prior year. This decrease resulted primarily from debt payments principally funded from free cash flow and proceeds from asset sales.
Full Year Constellation Beers and Spirits Results
Net sales for Constellation beers and spirits for fiscal 2006 reached $1.37 billion, an 11 percent increase over fiscal 2005. Imported beers posted a 13 percent increase in net sales for the year due to strong volume growth of the company's Mexican beer portfolio, and the St. Pauli Girl and Tsingtao brands.
"Our imported beer business was a phenomenal growth driver in fiscal 2006, and has excellent momentum heading into fiscal 2007," stated Sands. "With six of the top 20 imported beer brands, our portfolio delivered significant growth to wholesalers and retailers, which led to greater focus on, and distribution of, these brands. In fact, syndicated data from IRI reveals that Constellation Brands' imported beer business grew almost twice that of the next best competitor in the U.S. food and drug store channels in fiscal 2006."
Operating income for Constellation beers and spirits totaled $292.6 million for fiscal 2006, an increase of six percent over the prior year. Segment operating margin for the year was 21.4 percent compared with 22.3 percent for the prior year, with the decrease primarily due to higher transportation costs for imported beers, higher investment behind premium spirits and product mix.
Fourth Quarter Results
Net sales for the fourth quarter fiscal 2006 totaled $1.05 billion, up one percent over prior year fourth quarter, or four percent on a constant currency basis. Fourth quarter net sales included $8.5 million of sales for Robert Mondavi brands for the period Dec. 1 through Dec. 22, 2005, and $7.7 million of sales of Ruffino brands for the period Dec. 1, 2005 through Jan. 31, 2006. For the quarter, organic net sales, which exclude net sales of Robert Mondavi and Ruffino brands for these periods, decreased one percent, but increased two percent on a constant currency basis. Branded business net sales grew four percent, or five percent on a constant currency basis. Organic net sales for the branded business increased two percent, or three percent on a constant currency basis.
Reported operating income totaled $130.7 million for the fourth quarter fiscal 2006, or 12.5 percent of net sales, compared with $119.6 million or 11.5 percent of net sales for the fourth quarter fiscal 2005. The fourth quarter fiscal 2006 reported operating income was impacted by the previously referenced U.K. pension plan adjustment and Vincor tender offer expenses.
Reported net income for the fourth quarter fiscal 2006 increased 22 percent to $58.2 million, while reported diluted earnings per share for the fourth quarter fiscal 2006 totaled $0.24, an increase of 20 percent over fourth quarter fiscal 2005. Equity in earnings of equity method investees decreased for the quarter primarily due to a write-down of certain pre- acquisition Ruffino inventories. The reported effective income tax rate for the fourth quarter fiscal 2006 was 25.8 percent, compared with 36.0 percent for the fourth quarter fiscal 2005.
Fourth quarter fiscal 2006 operating income, on a comparable basis, was $162.8 million or 15.5 percent of net sales, compared with $159.5 million or 15.4 percent of net sales for the prior year period. On a comparable basis, fourth quarter fiscal 2006 net income and diluted earnings per share increased 19 percent to $86.9 million and 16 percent to $0.36, respectively.
Fourth Quarter Constellation Beers and Spirits Results
Net sales for Constellation beers and spirits for the fourth quarter fiscal 2006 totaled $280.9 million, a 16 percent increase over fourth quarter fiscal 2005. Imported beers posted a 20 percent increase in net sales for the quarter while spirits net sales for the quarter increased four percent reflecting a five percent increase in branded spirits and a slight decrease in contract production services.
Operating income for Constellation beers and spirits totaled $55.7 million for the fourth quarter fiscal 2006, an increase of five percent over the prior year quarter. Segment operating margin for the quarter was 19.8 percent compared with 21.8 percent for the prior year quarter with the decrease primarily due to higher transportation costs for imported beers, higher investment behind premium spirits and product mix.
Summary
"In fiscal 2006 we once again set new financial performance records, experienced true growth for our business, expanded our base of profitability and free cash flow and strengthened our platform for future growth," Sands pointed out. "We added strong wine and spirits brands to our portfolio through acquisitions and new product development, and our imported beer business outpaced U.S. beer market growth. We've restructured our business to meet the needs of our customers and the ever-changing marketplace dynamics, while remaining close to consumer trends. Mining the wealth of consumer insights we continuously gather from our core markets around the world, we are positioned to take advantage of many unharvested opportunities in fiscal 2007, with our sights always set on an unwavering commitment to increasing shareholder value."
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