In August, Constellation Brands
Revenues declined to $635.3 million in the second quarter, but the fall in cost of goods sold was even greater at 25.5%. Net profit stood at $74.5 million, representing 51.7% growth over the year-ago quarter. That uptick was mainly due to a 20% dip in selling, managing, and administrative expenses.
Reducing corporate costs and selling off business units in Australia and the U.K. helped the company simplify its business, cut losses, and really improved margins.
Constellation has a 50% stake in Crown Holdings
In an economy where consumer confidence is dipping, Constellation Brands doesn't seem to be much affected. Management thinks consumers will still demand their liquor, in good times or bad, simply by visiting wine shops instead of expensive restaurants. Product distribution in retail stores such as Wal-Mart
With its cash inflow of $220 million this quarter, the company managed to pay off debt totaling $244 million. Thus, the debt-to-equity ratio fell to 111% from 175% last year. Interest expenses fell to $44 million, a 9% decrease resulting from lower average borrowings. In addition, the interest coverage ratio rose slightly to 2.5, suggesting that the balance sheet, though highly leveraged, has been improving.
The Foolish bottom line
Constellation Brands seems to have its strategy in place. A simplified business and decreasing debt will help the company stay efficient and profitable. Plus, it doesn't face the brunt of weak consumer demand to the extent that other industries have felt. I think Constellation has a bright future ahead of it.
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Fool contributor Navjot Kaur owns no shares in the companies mentioned above. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.