Constellation Brands Beats - Analyst Blog

Constellation Brands (STZ) net income soared to $139.3 million in the third quarter of fiscal 2011, compared to $44.1 million the prior-year quarter. Excluding special items, adjusted earnings per share came in at 66 cents per share, surpassing both the Zacks Consensus Estimate of 62 cents and the year-ago earnings by 22%.

Bolstered by the strong quarterly performance, Constellation Brands lifted its earnings guidance for fiscal 2011 to a range of $1.80 and $1.85 per share. The guidance is ahead of the Zacks Consensus Estimate of $1.74 per share, which remained constant over the past 3 months.

Quarterly Details

Meanwhile, quarterly net sales declined by 2% to $966.4 million from $987.7 million in the year-ago period, primarily due to divestment of the value and cider spirits business in the U.K. and favorable foreign currency translations. In terms of geographic regions, North American net sales were flat year over year declining marginally by 1% to $731.7 million, primarily due to management initiatives to streamline distributor network in the U.S., while Australia and Europe fell 12% to $234.7 million.

Constellation Brands' operating income declined 24.9% year over year to $170.1 million, while operating margin expanded 382 basis points (bps) to 17.6%. The growth was primarily attributable to improved gross margin and lower restructuring expenses, partially offset by increased selling, general and administrative expenses.

Balance Sheet, Cash Flow and Divestiture

Constellation Brands ended the quarter with cash and cash equivalents of $16.0 million, compared with $43.5 million in the year-ago period. The company's long-term debt-to-capitalization ratio was 54%. Year-to-date, Constellation generated $369 million of cash from operations. The company also deployed $70.1 million toward capital expenditure and repaid $101.1 million of long-term debt.

The company recently announced that it signed an agreement to divest its Australian and U.K. business to CHAMP Private Equity. The deal is valued at approximately A$290 million. Constellation will retain about a 20% interest in the business and receive cash proceeds of approximately $230 million, subject to closing adjustments. The deal is expected to close by the end of January 2011 subject to customary and routine closing conditions. 

Looking ahead, Constellation Brands expects to generate $475 million to $525 million of free cash flow in fiscal 2011.