Constellation Brands, a beverage alcohol company, reported its third quarter 2015 results.
"We achieved outstanding results for the third quarter driven by the exceptional on-going momentum for our beer business. This industry leading performance reflects the benefits of our marketing and brand building efforts, distribution growth for key brands, as well as excellent sales and distributor execution. Strong beer shipment volume performance is the primary driver of the upward revision to our EPS outlook for the year," said Rob Sands, president and chief executive officer, Constellation Brands. "I am also pleased that we have finalized and begun implementing our long-term glass sourcing strategy for the beer business. We believe this strategy provides the optimal solution for this essential component of our beer production process. In addition, our wine and spirits business delivered solid earnings growth and our spirits brands gained share during the quarter."
Net Sales Commentary
For the quarter, the company generated consolidated net sales growth of seven percent.
Net sales for the beer segment increased 16 percent primarily due to volume growth. This result includes the expected shift of approximately two million case shipments to wholesalers and approximately $37 million of net sales from the second quarter into the third quarter as a result of the previously announced Corona Extra recall activities. Excluding the impact from the recall, third quarter underlying beer net sales increased 11 percent. Beer depletions grew eight percent, reflecting strong consumer demand for all key brands within the beer portfolio. In addition, distributors increased their inventory during the quarter to be more in-line with historical levels and be better positioned to capture growth opportunities for the beer portfolio going forward.
"Our beer business continued to gain share across all channels during the third quarter driven by Modelo Especial, Corona Extra and Modelo Especial Chelada," said Sands. "Our outstanding beer portfolio is experiencing tremendous momentum and generated the vast majority of total U.S. industry volume growth in IRI channels during the quarter."
Wine and spirits net sales on a constant currency basis were even with the prior year third quarter. This primarily reflects higher spirits shipment volume offset by lower wine volume, higher promotional spend and lower bulk wine net sales. "While we are on track to meet our earnings goal for the year, we do not expect depletions to grow in line with the U.S. wine category," said Sands. "However, during the third quarter, we experienced solid depletion trends for some of our fastest-growing wine brands, including Kim Crawford, Ruffino, Black Box and The Dreaming Tree. Our spirits business generated outstanding growth and gained share in the spirits category driven by new flavor introductions across the portfolio. We also completed the integration of the Casa Noble tequila brand into our marketing and sales organizations and the brand is quickly gaining traction."
Operating Income and Net Income Commentary
The increase in consolidated comparable basis operating income primarily reflects the higher volume for the beer business. The increase in wine and spirits operating income primarily reflects favorable costs of goods sold.
Interest expense for the third quarter totaled $86 million, a decrease of four percent. The decrease was primarily due to lower average interest rates.
The effective tax rate for the third quarter 2015 was 29 percent compared to a 28 percent tax rate for the prior year third quarter.
Free Cash Flow Commentary
Free cash flow for the first nine months of fiscal 2015 totaled $209 million as compared to $543 million for the same period last year. Benefits from the growth of the beer business were more than offset by higher capital expenditures related primarily to the expansion of the Nava brewery in Mexico.
"Our Nava brewery expansion and glass-sourcing initiatives which are designed to support the strong growth of the beer business over the long-term, are progressing as planned from a timing and budget perspective," said Bob Ryder, chief financial officer, Constellation Brands. "For fiscal 2015, we continue to expect free cash flow to be in the range of $275 - $350 million and to generate operating cash flow of at least $1 billion."
