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Actionable news in STZ: CONSTELLATION BRANDS Inc,

Constellation Brands: Second Quarter Fiscal 2016 Results

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

Achieves comparable basis EPS of

and reported basis EPS of

driven by beer business and favorable quarterly tax rate

Generates

$508 million

of free cash flow and

$803 million

of operating cash flow

Increases

fiscal 2016

outlook driven primarily by strong beer business results; expects comparable basis EPS of

$5.00 - $5.20

$4.73 - $4.93

Increases fiscal 2016 free cash flow projection to $200 - $300 million including operating cash flow target of at least $1.25 billion; total capital expenditure estimate of

$1. 15 billion

remains unchanged for fiscal 2016

Brewery and glass plant expansions continue to proceed as planned

Completes Meiomi wine brand acquisition in August 2015

Declares quarterly cash dividend

Second Quarter 2016 Financial Highlights*

(in millions, except per share data)

Comparable

% Change

Reported

Net sales

$1,733

Operating income

Operating margin

+320 bps

+410 bps

Earnings before interest and taxes (EBIT)

Net income attributable to CBI

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.,

Oct. 7, 2015

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

second quarter 2016

results.

“We posted outstanding results for our second quarter driven by the impressive, sustained momentum of our beer business, which is also driving an increase in our EPS projection for the year. I am pleased that our glass plant and Nava brewery expansions continue to progress as planned, with our first incremental five million hectoliters of capacity scheduled to become operational by calendar year end. Our wine and spirits business posted improved margins, strong sales growth for our spirits portfolio and excellent financial results for our Canadian business,” said Rob Sands, president and chief executive officer, Constellation Brands.

Net Sales Commentary

For the quarter, the company generated consolidated organic net sales growth on a constant currency basis of

nine percent

Beer net sales increased

14 percent

, primarily due to volume growth. Beer depletions grew

10 percent

, reflecting strong consumer demand for the beer portfolio. The company estimates that beer recall activities during the second quarter of fiscal 2015 resulted in the reversal of approximately two million case shipments and a $37 million reduction of net sales. Net sales growth for third quarter fiscal 2016 is expected to be impacted due to the $37 million shift in net sales from second quarter fiscal 2015 to third quarter fiscal 2015 in connection with the product recall.

“During the second quarter, Constellation’s beer business represented 45% of total U.S. beer industry volume growth in IRI channels and posted its 22nd consecutive quarter of volume share gains. These stellar results were powered by the continuing success of our two largest brands, Corona Extra and Modelo Especial,” said Sands. “In addition to strong volume growth across our portfolio, we are experiencing favorable commodity and foreign currency benefits, as well as better than expected results from our glass plant, that are driving improved operational results and enabling an increase in our margin expectation for the beer business in fiscal 2016.”

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

three percent

. This primarily reflects volume growth within the spirits portfolio.

“During the quarter, we experienced strong depletion trends of more than six percent for our wine and spirits focus brands, led by double digit growth of Kim Crawford, Black Box, The Dreaming Tree and Ruffino, as investments in these key brands are paying off. We have successfully integrated Meiomi into our existing wine portfolio and we are working to expand distribution to drive incremental growth for this brand,” said Sands. “The spirits business delivered growth across the portfolio, led by Paul Masson Grande Amber Brandy and SVEDKA Vodka.”

Operating Income and Net Income Commentary

For the quarter, consolidated comparable basis operating income increased

21 percent

Beer operating income increased

31 percent

, primarily due to volume growth, lower cost of product sold and favorable pricing for the beer portfolio. The

four percent

increase in wine and spirits operating income primarily reflects volume growth and lower cost of product sold, partially offset by unfavorable foreign currency translation.

, pre-tax comparable adjustments totaled

$23 million

as compared to $39 million for the same period last year.

Interest expense for

2016 totaled

$77 million

, a decrease of

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

The comparable basis effective tax rate for

24.6 percent

, which reflects the favorable outcome of various tax items for the quarter, as compared to a

32.3 percent

tax rate for the prior year

. The company continues to expect a comparable basis effective tax rate of approximately 30.5 percent for fiscal year 2016.

Free Cash Flow Commentary

Free cash flow for the

first six months of fiscal 2016

$360 million

for the same period last year. The increase is primarily driven by higher operating cash flow.

“We are increasing free cash flow guidance for

to a range of $200 to $300 million. The anticipated increase is being primarily driven by higher earnings for the beer business and lower tax and interest payments, as we now expect to generate operating cash flow of $1.25 to $1.45 billion,” said David Klein, executive vice president and chief financial officer, Constellation Brands.

Quarterly Dividend

On October 6, 2015, Constellation’s board of directors declared a quarterly cash dividend of $0.31 per share of Class A Common Stock and $0.28 per share of Class B Common Stock, payable on November 24, 2015, to stockholders of record as of the close of business on November 9, 2015.

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

, the beer business continues to expect net sales growth of approximately 10 percent but now expects operating income growth in the 15 - 18 percent range. For the wine and spirits business, the company continues to expect net sales and operating income growth to be in the low-to-mid single-digit range before any benefit from the Meiomi acquisition.

Fiscal 2016

guidance also includes the following current assumptions, including the acquisition of the Meiomi wine brand:

Interest expense: approximately $310 - $320 million

Tax rate: approximately 30.5 percent

Weighted average diluted shares outstanding: approximately 204 million

Free cash flow: approximately $200 - $300 million

Operating cash flow: approximately $1.25 - $1.45 billion

Capital expenditures: approximately

$950 million

$1.05 billion

Conference Call

A conference call to discuss

results and outlook will be hosted by President and Chief Executive Officer Rob Sands and Executive Vice President and Chief Financial Officer David Klein on

Wednesday

at 10:30 a.m. (eastern). The conference call can be accessed by dialing +973-935-8505 beginning 10 minutes prior to the start of the call. A live listen-only webcast of the conference call, together with a copy of this news release (including the attachments), and other financial information that may be discussed during the call will be available on the Internet at the company’s website: www.cbrands.com under “Investors,” prior to the call.

Explanations

Reported basis (“reported”) operating income, net income and EPS are as reported under generally accepted accounting principles. Operating income, net income and EPS on a comparable basis (“comparable”), exclude items that affect comparability (“comparable adjustments”), as they are not reflective of core operations of the segments. The company’s measure of segment profitability excludes comparable adjustments, which is consistent with the measure used by management to evaluate results.

The company discusses...


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