Constellation Brands (STZ 0.98%) is the company behind top-selling wine and spirits brands, including Meiomi and Svedka vodka, but it's growing demand for its specialty beer brands that's supporting the company's financials lately. Strong beer sales boosted the company's fiscal 2019 results, while slowing demand for wine and spirits has prompted it to divest some noncore brands. Here's how Constellation Brands performed last fiscal year and what it's telling investors to expect in fiscal 2020.
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Constellation Brands: The raw numbers
The company's net sales grew at a mid-single-digit rate in fiscal 2019, while net income increased substantially because of unrealized gains on its investment in marijuana company Canopy Growth, offset by a dip in operating margin from 30.1% to 29.7%.
| Metric | Fiscal 2019 | Fiscal 2018 | Year-Over-Year Change | FY Q4 2019 | FY Q4 2018 | Year-Over-Year Change |
|---|---|---|---|---|---|---|
| Net sales | $8.1 billion | $7.6 billion | 7% | $1.8 billion | $1.76 billion | 2% |
| Operating income | $2.4 billion | $2.3 billion | 6% | $465 million | $512 million | -9% |
| Net income | $3.4 billion | $2.3 billion | 49% | $1.24 billion | $911 million | 36% |
| Diluted EPS | $17.57 | $11.47 | 53% | $6.37 | $4.56 | 40% |
Data source: Constellation Brands. EPS = earnings per share. FY = fiscal year.
What happened with Constellation Brands?
In fiscal year 2019, the company:
- Delivered double-digit net beer sales and operating income growth.
- Generated record operating cash flow of over $2.2 billion.
- Acquired 38% of Canopy Growth, Canada's top marijuana company by revenue.
- Agreed to sell some wine and spirits brands to E. & J. Gallo Winery for approximately $1.7 billion.
- Bought back 2.4 million shares of common stock for $504 million for fiscal 2019.
The beer business performed best in the period. In fiscal 2019, shipment volume rose 9.7% because of strong demand for Modelo Especial, Corona Premier, and Corona Familiar. Net beer sales increased 11.6% to $5.2 billion, and operating income increased 11% to $2.04 billion.
Shipments in the wine and spirits business fell 0.8% in fiscal 2019, contributing to net sales and operating income declining 0.2% and 2.9% to $2.9 billion and $771 million, respectively. The company's best-performing wine and spirits brands in fiscal 2019 were Kim Crawford, Meiomi, Ruffino Sparkling, Cooper & Thief, and High West.
What management had to say
CEO Bill Newlands explained how selling the wine and spirits assets will affect the company's future:
We've positioned our wine and spirits business for success with our announced plans to sell a portion of the business, which enables us to continue to strategically focus on our powerhouse, high-margin, high-growth brands. ... Overall, we're confident in our ability to drive top line growth of mid-to-high single digits over the next three to five years.
CFO David Klein highlighted the company's future commitment to returning more money to investors:
In fiscal 2020, we remain committed to increasing our quarterly dividend. Longer term, we expect the powerful cash generation capability of our core business to enable significant cash returns to shareholders of $4.5 billion in the form of share repurchases and dividends over the next three fiscal years.
Looking forward
Constellation Brands is guiding for fiscal 2020 earnings per share of between $8.50 to $8.80 on a comparable basis ($8.47 to $8.77 on an as-reported basis), which would be down from $9.34 in fiscal 2019. The company expects to deliver 7% to 9% net beer sales and operating income growth in fiscal 2020. However, wine and spirits sales will decline 25% to 30% because of its decision to sell certain brands, creating a 30% to 35% headwind to operating income for the wine and spirits business. Excluding the impact of lost sales because of the divestiture, the company is guiding for its remaining wine and spirits brands to deliver mid- to high-single-digit organic operating income growth.
