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Actionable news in STZ: CONSTELLATION BRANDS Inc,

Constellation Brands: Fiscal 2016 Financial Highlights*

The following excerpt is from the company's SEC filing.

(in millions, except per share data)

Comparable

% Change

Reported

Net sales

$6,548

Operating income

$1,866

$1,765

Operating margin

+220 bps

+210 bps

Earnings before interest and taxes (EBIT)

$1,892

Net income attributable to CBI

$1,107

$1,055

Diluted net income per share attributable to CBI (EPS)

*Definitions of reported and comparable, as well as reconciliations of non-GAAP financial measures, are contained elsewhere in this news release.

NA=Not Applicable

VICTOR, N.Y.,

– Constellation Brands, Inc. (NYSE: STZ and STZ.B), a leading beverage alcohol company, reported today its

fiscal 2016

results.

“It has proved to be another dynamic year of significant accomplishments and impressive financial results for Constellation,” said Rob Sands, president and chief executive officer, Constellation Brands. “In fiscal 2016, our beer business delivered industry-leading market results as the #1 growth contributor in the U.S. beer category, achieving stellar growth across the portfolio. We also acquired Ballast Point, one of the most awarded, major craft brewers in the industry, and solidified our position in the high-end segment of the U.S. beer market. We successfully completed our first 5 million hectoliter capacity expansion at our Nava brewery, and we began investing in a new, state-of-the art brewery in Mexicali, Mexico, in order to support the ongoing momentum of our iconic Mexican beer brands. In our wine and spirits business, we further strengthened the financial profile by channeling resources and brand-building investments toward higher-growth, higher-margin brands. This strategy, combined with the Meiomi wine acquisition, helped to drive healthy margin expansion and earnings growth. Overall, we are excited to build on the success of fiscal 2016, as we are targeting impressive results for the coming year,” said Sands.

Today, the company announced an agreement to acquire The Prisoner Wine Company brands, a fast-growing, super-luxury portfolio of five highly rated wine brands that have grown volumes at an

annual rate of 30% over the last three years to reach 175,000 case

in 2015. “This acquisition aligns with our portfolio premiumization strategy, enables us to capitalize on U.S. market trends that favor high-end wine brands and strengthens our position in the dynamic and margin enhancing super-luxury wine category,” said Sands. The cash paid at closing for the deal is expected to approximate $285 million. The transaction is expected to close by the end of April 2016 and to be $0.03 to $0.05 accretive to EPS for fiscal 2017.

Constellation is also announcing today that the company is evaluating plans to execute an IPO for a portion of the Canadian wine business. “As part of our ongoing strategic efforts to identify opportunities to create value for our shareholders and strengthen the financial profile of our wine and spirits business, we are evaluating the merits of an initial public offering for a portion of our Canadian wine business,” said Sands. “In fiscal 2016, our business in Canada delivered excellent overall financial results, outperformed the industry and gained market share, and we believe its full value is not being recognized. An IPO will create better visibility to this dynamic part of the business. A final decision regarding whether to pursue a potential initial public offering is expected to be made later this calendar year,” added Sands.

Fiscal 2016

Net Sales Commentary

For the year, the company generated consolidated net sales growth of

nine percent

. This reflects organic net sales growth on a constant currency basis of

eight percent

and acquisition benefits from Meiomi and Ballast Point, partially offset by unfavorable currency impact.

Organic net sales for beer increased

13 percent

primarily due to volume growth and favorable pricing. Beer depletions grew

12 percent

, reflecting strong consumer demand for the beer portfolio.

“The exceptional marketplace results and market share gains delivered by our beer business were driven by Modelo Especial and Corona Extra, and complemented by the solid growth of our remaining stable of beer brands.

This performance reflects ongoing excellent commercial execution and best-in-class brand marketing initiatives,” said Sands.

Wine and spirits organic net sales on a constant currency basis increased

three percent

. This primarily reflects volume growth and favorable mix. Fiscal 2016 net sales benefited from the overlap of a planned U.S. distributor inventory destocking during fiscal 2015, partially offset by the overlap of a “make-whole” distributor payment associated with this activity.

“Our focus brands strategy is working as we are reaping the benefits of investments in these key wine brands, which posted depletion growth of

five percent

for the year, driven by Kim Crawford, Meiomi, Ruffino, Black Box, SIMI, Clos du Bois, The Dreaming Tree and Woodbridge by Robert Mondavi. Our spirits portfolio generated solid growth for the year driven by the continued success of our flavored line extensions for Paul Masson Grande Amber Brandy and SVEDKA Vodka. The Casa Noble tequila brand is one of the fastest-growing tequila brands in the U.S. and gained market share for the year,” said Sands.

Operating Income and Net Income Commentary

For the year, consolidated comparable basis operating income increased

18 percent

Beer operating income increased

24 percent

primarily due to organic volume growth, favorable pricing and lower cost of product sold, partially offset by increased marketing spend. The

increase in wine and spirits operating income primarily reflects the benefit of the Meiomi acquisition, lower cost of product sold and organic volume growth, partially offset by higher marketing spend.

For the year, pre-tax comparable adjustments totaled

$77 million

as compared to

$87 million

for the prior year.

Interest expense for the

$314 million

, a decrease of

seven percent

. The decrease was primarily due to lower average interest rates.

The comparable basis effective tax rate for

29.6 percent

29.5 percent

Free Cash Flow Commentary

Free cash flow for

$522 million

$362 million

for the prior year. Benefits from the growth of the beer business were partially offset by higher capital expenditures related primarily to the expansion of the company’s Mexican operating platform.

“Our strong earnings and operating cash flow growth continue to enhance our financial profile and create significant financial flexibility. This has enabled us to finish fiscal 2016 with a net debt to comparable basis EBITDA ratio below the 4 times mark, even as we made significant capital investments in our Mexican operations, acquired Meiomi and Ballast Point, initiated a dividend and repurchased shares,” said David Klein, chief financial officer, Constellation Brands. “We are significantly increasing our dividend for the coming year and expect to continue to grow operating cash flow with a goal of

$1.7 billion

for fiscal 2017. Ongoing investments in our Mexican operations will drive our targeted free cash flow for fiscal 2017 to be in the range of

$350 million

,” said Klein.

Fourth Quarter 2016 Financial Highlights*

$1,543

+240 bps

+50 bps

For the quarter, the company generated consolidated net sales growth of

14 percent

10 percent

primarily due to volume growth and favorable pricing. Wine and spirits net sales on an organic constant currency basis increased

four percent

primarily driven by volume growth.

For the quarter, consolidated comparable basis operating income increased

29 percent

primarily due to organic volume growth, favorable pricing and lower cost of product sold, partially offset by increased selling, general and administrative expenses driven largely by higher marketing spend. The

increase in wine and spirits operating income primarily reflects the benefit of the Meiomi acquisition, organic volume growth and lower cost of product sold, partially offset by increased marketing spend.

fourth quarter 2016

$84 million

, an increase of

. The increase was due to higher average borrowings.

29.8 percent

. This compares to a

23.2 percent

tax rate for the prior year

which reflected the benefit of certain foreign tax credits.

Quarterly Dividend and Share Repurchases

April 5, 2016

, Constellation’s board of directors declared a quarterly cash dividend of $0.40 per share of Class A Common Stock and $0.36 per share of Class B Common Stock, payable on

May 24, 2016

, to stockholders of record as of the close of business on

May 10, 2016

. This represents a 29 percent increase in the dividend rate per share for both the Class A and Class B Common Stock.

During

, the company repurchased approximately 246,000 shares of common stock for $34 million.

Outlook

The table below sets forth management’s current EPS expectations for

actual results, both on a comparable basis and a reported basis.

Comparable Basis

Reported Basis

Estimate

Actual

Fiscal Year Ending Feb. 28/29

$6.05 - $6.35

$6.00 - $6.30

, the beer business is targeting net sales and operating income growth in the range of 14 - 17 percent that includes an estimated incremental benefit from the Ballast Point acquisition. For the wine and spirits business, the company expects net sales growth in the mid single-digit range and operating income growth to be in the mid to high single-digit range. These growth rates include estimated incremental benefits from the Meiomi and Prisoner acquisitions.

Full-year

guidance also includes the following current assumptions:

Interest expense: approximately $325 - $335 million

Tax rate: approximately 29 percent

Weighted average diluted shares outstanding: approximately 206 million

Free cash flow: approximately

Operating cash flow: approximately

Capital expenditures: approximately

$1.35 billion

The beer segment’s capital investment projects in Mexico (outlined in the table below) remain on track from an overall estimated cost and timing of completion...


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