Alcoholic beverage maker Constellation Brands, Inc. (STZ,CBR.AX,STZ-B) on Thursday reported an 87 percent plunge in profit for the second quarter from last year, when results were boosted by a hefty one-time gain.
Both revenue and adjusted earnings per share for the latest quarter missed analysts' expectations. Looking ahead, the company lowered its outlook for fiscal 2015 earnings on a reported basis, but affirmed its adjusted earnings outlook.
New York-based Constellation Brands reported net income for the second quarter of $195.8 million or $0.98 per Class A share, down from $1.52 billion or $7.74 per Class A share in the prior-year quarter. Earnings per Class B convertible common stock decreased to $0.90 from $7.11 in the year-ago period.
The world's largest wine company completed its acquisition of its joint-venture partner Mexican brewer Grupo Modelo S.A.B. de C.V.'s (GPMCF) U.S. beer business from Anheuser-Busch InBev (BUD) for about $5.3 billion in June 2013.
The company noted that the latest quarter's results were impacted by a higher tax rate and a voluntary beer recall as the company expects beer sales shift from the second to the third quarter.
In addition, the prior-year quarter's results included a non-cash gain of $1.6 billion on the remeasurement to fair value of the company's original 50 percent interest in the Crown Imports joint venture as a result of the beer business acquisition.
Excluding one-time items, adjusted net income for the latest quarter was $222 million or $1.11 per share, compared to $188.7 million or $0.96 per share in the year-ago quarter.
On average, twelve analysts polled by Thomson Reuters expected the company to report earnings of $1.15 per share for the quarter. Analysts' estimates typically exclude special items.
Total net sales for the quarter grew 10 percent to $1.60 billion from $1.46 billion in the same quarter last year, but missed analysts' consensus revenue estimate of $1.64 billion.
The sales growth was driven by $73 million of incremental net sales related to the consolidation of one additional week of beer business net sales in the latest quarter, due to the timing of the beer business acquisition. In addition, the company posted consolidated organic growth of 5 percent.
Net sales for the beer segment rose 9 percent from the year-ago period, primarily due to volume growth driven by strong consumer demand.
This includes the reversal of about two million case shipments to wholesalers as part of the recall actions that translates to a reduction of about $37 million of net sales for the second quarter. The company expects to replenish this volume with shipments to wholesalers primarily during the third quarter.
Wine and spirits net sales for the quarter on an organic constant currency basis increased 3 percent, primarily reflecting higher shipment volume and lower promotional expense.
Wine and spirits shipment volume for the quarter increased 1.2 percent, while beer shipment volume grew 7.2 percent.
Looking ahead to fiscal 2015, Constellation Brands lowered its forecast for earnings per share on a reported basis to a range of $3.85 to $4.00 from the prior range of $3.90 to $4.05.
However, the company reaffirmed its outlook for comparable earnings of $4.10 to $4.25 per share. Analysts expect the company to report earnings of $4.25 per share for the year.
In a separate statement, Constellation Brands said it has agreed to acquire a glass plant and associated warehouse, land and rail infrastructure in Nava, Mexico from Anheuser-Busch InBev for about $300 million.
The deal is subject to the U.S. Department of Justice and Mexican regulatory approvals, both of which the company expects to receive before the end of calendar year 2014.
Constellation has also agreed to enter into a 50-50 joint venture with Owens-Illinois, Inc. (OI) to own and operate the new glass container production plant to be purchased from Anheuser-Busch InBev.
Owens-Illinois will contribute about $100 million for its 50 percent share of the joint venture, which does not include the warehouse, land and rail infrastructure, as these assets will be held by Constellation outside of the joint venture.
In addition, Constellation Brands has started an additional five million hectoliter expansion at the Nava Brewery in Mexico that will extend production capacity from 20 million hectoliters to 25 million hectoliters on completion.
The estimated cost of the expansion is $450 million to $550 million, and is expected to be completed by the end of calendar year 2017.
STZ closed Wednesday's trading at $85.26. In Thursday's pre-market activity, the stock is trading at $83.20, down $2.06 or 2.42 percent.
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