Constellation Brands (NYSE: STZ) earnings release for the 4th quarter of their 2020 fiscal year
Category: Stock Market and Constellation Brands
Date: 4 April 2020 Stock Price: $132.17 We take a look at the 4th quarter earnings report of their 2020 fiscal year of Constellation Brands a leading international producer and marketer of beer, wine and spirits, and the owner of Corona beer and a equity investor in Canadian cannabis company, Canopy
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About Constellation Brands
Constellation Brands (NYSE: STZ and STZ.B), a Fortune 500® company, is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand, Italy, and Canada. Constellation is the No. 3 beer company in the U.S. with high-end, iconic imported beer brands such as the Corona and Modelo brand families, and Pacifico. Its high-quality wine and spirits brands include the Robert Mondavi and The Prisoner Wine Company brand families, Kim Crawford, Ruffino, Meiomi, and SVEDKA Vodka. The company’s portfolio also includes a collection of highly-rated wine brands such as SIMI and Mount Veeder Winery, spirits brands High West Whiskey and Casa Noble Tequila, as well as new wine innovations such as Cooper & Thief and Spoken Barrel.
Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand building, our trade partners, the environment, our investors, and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Since its founding in 1945, Constellation’s ability to see, meet and stay ahead of shifting consumer preferences and trends across total beverage alcohol has fueled our success and made us one of the top growth contributors in beverage alcohol in the U.S.
Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand building, our trade partners, the environment, our investors, and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Since its founding in 1945, Constellation’s ability to see, meet and stay ahead of shifting consumer preferences and trends across total beverage alcohol has fueled our success and made us one of the top growth contributors in beverage alcohol in the U.S.
Overview of Constellation Brands' 4th quarter 2020 earnings report
- Net sales: $1.902 billion (up from $1.797 billion for the same quarter of the previous year)
- Net sales increased by 5.8% over the last 12 months
- Cost of sales: $953.1 million (up from $903.7 million for the same quarter of the previous year)
- Cost of sales increased by 5.48% over the last 12 months
- Some margin gain for Constellation Brands as their net sales increased at a faster rate than their cost of sales
- Net earnings of Constellation Brands :$398.4 million (down from $1.239 billion for the same quarter of the previous year)
- Diluted earnings per share: $1.89 (down from $5.87 per share for the same quarter of the previous year)
- PE ratio of Constellation Brands: 22.1
- Dividend declared for the quarter: $0.68
- Dividend yield of Constellation Brands: 2.1%
- Diluted weighted-average shares outstanding: 194.918 million (up from 194.499 million for the same quarter of the previous year)
- Cash and cash equivalents: $81.4 million
- Cash and cash equivalents per share: $0.42
- Cash and cash equivalents makes up 0.32% of Constellation's market capital
- Cash and cash equivalents makes up 0.29% of Constellation's total assets
- We are concerned about the low levels of cash on Constellation's balance sheet and they might start running into cash flow problems if the low cash reserves continue. If this becomes the case the group will either have to issue stock or take on debt to shore up cash reserves, neither of which will be good for stockholders.
- Accounts receivable: $864.8 million
- Accounts receivable makes up 2.98 % of Constellation's total assets
- Inventories: $1.373 billion
- Inventories makes up 5.02% of Constellation's total assets
- Goodwill: $7.757 billion
- Goodwill makes up 28.4% of Constellation's total assets. We are always nervous about goodwill making up such a large chunk of a company's assets. Basically goodwill is the estimated value of the name and reputation of the brands they hold. So if they were to sell Corona for example the group will attach a value of goodwill to Corona and tell the buyer this is how much goodwill is in the brand name. Such valuations are usually very subjective and its easy to manipulate or overinflate if you want to overstate the value of your company's assets.
- Goodwill amounts to $39.88 a Constellation Brands stock
- Stockholders equity of Constellation': $12474 billion
- Stockholders equity per share for Constellation Brands : $63.99
- So Constellation brands is trading at 2.07 times it stockholders equity per share which is just within the expected range of between 2 and 4 times most companies tend to trade at.
- To put this into perspective the S&P 500 trades at an average price to book value of 3.34. Read more about the S&P 500 here
Constellation Brands' management commentary on their 4th quarter 2020 results
VICTOR, N.Y., April 03, 2020 (GLOBE NEWSWIRE) -- Constellation Brands, Inc. (NYSE: STZ and STZ.B), a leading beverage alcohol company, reported today its fiscal year and fourth quarter 2020 results and fiscal year 2021 outlook.
“Fiscal 20 represented another excellent year of strong results marked by milestones which include the achievement of record cash flow results and double-digit operating income growth for our iconic beer business. In addition, our Wine & Spirits Power Brands and new product introductions fueled growth as our premiumization strategy for this business continues to gain momentum.” said Bill Newlands, President and Chief Executive Officer.
“Our strong performance drove record cash flow results which we used to reduce debt to our targeted leverage range while returning value to shareholders through dividends and share repurchases. In this time of uncertainty, we believe we have ample liquidity and financial flexibility and remain committed to our investment grade rating. We have significant capacity under our $2 billion revolving credit facility and we plan to carefully manage our debt position over the next 24 months. In addition, we are expecting approximately $850 million in cash upon the close of the Gallo transaction and we remain focused on prudently navigating the challenging operating environment presented by COVID-19.”
“Fiscal 20 represented another excellent year of strong results marked by milestones which include the achievement of record cash flow results and double-digit operating income growth for our iconic beer business. In addition, our Wine & Spirits Power Brands and new product introductions fueled growth as our premiumization strategy for this business continues to gain momentum.” said Bill Newlands, President and Chief Executive Officer.
“Our strong performance drove record cash flow results which we used to reduce debt to our targeted leverage range while returning value to shareholders through dividends and share repurchases. In this time of uncertainty, we believe we have ample liquidity and financial flexibility and remain committed to our investment grade rating. We have significant capacity under our $2 billion revolving credit facility and we plan to carefully manage our debt position over the next 24 months. In addition, we are expecting approximately $850 million in cash upon the close of the Gallo transaction and we remain focused on prudently navigating the challenging operating environment presented by COVID-19.”
PRE COVID-19 BUSINESS TARGET ASSUMPTIONS FOR FISCAL 2021
Fiscal 2021 EPS guidance is unavailable at this time due to potential impacts on the business from COVID-19. However, the table below sets forth management’s pre-COVID-19 business expectations for fiscal 2021 compared to fiscal 2020 actual results.
These target assumptions do not reflect future changes in the fair value of the company’s investments in Canopy’s warrants and convertible debt securities. Additionally, the company continues to evaluate the future potential equity earnings impact from the Canopy equity method investment and related activities and, as such, these items have been excluded from the target assumptions noted above. For target purposes, the revised Wine and Spirits transaction to sell a portion of the business to E. & J. Gallo Winery (“Gallo”) (the “Revised Wine and Spirits Transaction”) is now assumed to close around the end of Q1 fiscal 2021 and the separate, but related, agreement to divest the Nobilo Wine brand to Gallo (the “Nobilo Transaction”) is assumed to close by the end of Q2 fiscal 2021. In addition, the company intends to divest the Paul Masson Grande Amber Brandy brand and the concentrate business in separate transactions that are assumed to close around the end of Q1 fiscal 2021 and plans to retain the Cooks and J. Roget brands. The target assumptions exclude any additional gain or loss from these transactions and proceeds are expected to be used primarily for the repayment of debt.
QUARTERLY DIVIDEND
On April 2, 2020, Constellation’s board of directors declared a quarterly cash dividend of $0.75 per share of Class A Common Stock and $0.68 per share of Class B Common Stock, payable on May 19, 2020, to stockholders of record as of the close of business on May 5, 2020.
Fiscal 2021 EPS guidance is unavailable at this time due to potential impacts on the business from COVID-19. However, the table below sets forth management’s pre-COVID-19 business expectations for fiscal 2021 compared to fiscal 2020 actual results.
- Beer: net sales growth of 7%-8% including the impact of the Ballast Point divestiture and organic net sales growth of 8%-10%;
- operating margin of 39.5%-40.0%
- Wine and Spirits: net sales and operating income decline of approximately 30% to 35%, respectively;
- Retained Power Brand portfolio post divestiture transactions expected to grow 2%-4%
- Interest expense: approximately $385 - $395 million
- Tax rate: approximately 18%
- Weighted average diluted shares outstanding: approximately 195 million; assumes no share repurchases for fiscal 2021 Operating cash flow: $2.3 - $2.5 billion
These target assumptions do not reflect future changes in the fair value of the company’s investments in Canopy’s warrants and convertible debt securities. Additionally, the company continues to evaluate the future potential equity earnings impact from the Canopy equity method investment and related activities and, as such, these items have been excluded from the target assumptions noted above. For target purposes, the revised Wine and Spirits transaction to sell a portion of the business to E. & J. Gallo Winery (“Gallo”) (the “Revised Wine and Spirits Transaction”) is now assumed to close around the end of Q1 fiscal 2021 and the separate, but related, agreement to divest the Nobilo Wine brand to Gallo (the “Nobilo Transaction”) is assumed to close by the end of Q2 fiscal 2021. In addition, the company intends to divest the Paul Masson Grande Amber Brandy brand and the concentrate business in separate transactions that are assumed to close around the end of Q1 fiscal 2021 and plans to retain the Cooks and J. Roget brands. The target assumptions exclude any additional gain or loss from these transactions and proceeds are expected to be used primarily for the repayment of debt.
QUARTERLY DIVIDEND
On April 2, 2020, Constellation’s board of directors declared a quarterly cash dividend of $0.75 per share of Class A Common Stock and $0.68 per share of Class B Common Stock, payable on May 19, 2020, to stockholders of record as of the close of business on May 5, 2020.
Constellation Brands (NYSE: STZ) stock price history
The image below, obtained from Google, shows the stock price history of Constellation Brands (NYSE: STZ) for the last 5 years. And it's been a very good time for Constellation Brands stockholders. 5 years ago the stock was trading at around $121 a stock and its currently trading at $31.17 a stock. That's a muted return of 8.4% provided by Constellation Brands over the last 5 years.
The stock of Constellation Brands is trading at a lot closer to its 52 week low of $104.28 than it is to its 52 week high of $214.48 which to us is a clear indication that the short term sentiment and momentum of Constellation Brands stock is very negative at this point in time, as is the case with most stocks around the world after massive stock market sell offs triggered by the Coronavirus pandemic and its impact on global economic growth. Read more about the global market sell off here.
The stock of Constellation Brands is trading at a lot closer to its 52 week low of $104.28 than it is to its 52 week high of $214.48 which to us is a clear indication that the short term sentiment and momentum of Constellation Brands stock is very negative at this point in time, as is the case with most stocks around the world after massive stock market sell offs triggered by the Coronavirus pandemic and its impact on global economic growth. Read more about the global market sell off here.
Recent coverage of Constellation Brands
The extract below shows some of the latest coverage on Constellation Brands obtained from TheStreet.com
Constellation Brands (STZ) - Get Report, brewer of Corona beer, beat Wall Street's fourth-quarter earnings and revenue expectations but declined to offer guidance due to the impact of the coronavirus pandemic. Shares of the Victor, New York-based company were rising 2.4% to $133.89 in premarket trading.
Constellation Brands reported fourth-quarter net income of $398.4 million, or $2.04 a share, compared with $1.239.5 billion, or $5.87 a share, a year ago. Adjusted earnings were $2.06, beating FacSet's call for $1.64. Sales totaled $1.903 billion, up 6% from a year ago and ahead of the $1.836 billion FactSet consensus.
"In this time of uncertainty, we believe we have ample liquidity and financial flexibility and remain committed to our investment grading," Chief Financial Officer Garth Hankinson said in a statement. "We have significant capacity under our $2 billion revolving credit facility and we plan to carefully manage our debt position over the next 24 months."
Hankinson said the company expects to receive about $850 million in cash from the closing of the sale of its Gallo wines and "we remain focused on prudently navigating the challenging operating environment presented by Covid-19."
Read the full article here
Constellation Brands (STZ) - Get Report, brewer of Corona beer, beat Wall Street's fourth-quarter earnings and revenue expectations but declined to offer guidance due to the impact of the coronavirus pandemic. Shares of the Victor, New York-based company were rising 2.4% to $133.89 in premarket trading.
Constellation Brands reported fourth-quarter net income of $398.4 million, or $2.04 a share, compared with $1.239.5 billion, or $5.87 a share, a year ago. Adjusted earnings were $2.06, beating FacSet's call for $1.64. Sales totaled $1.903 billion, up 6% from a year ago and ahead of the $1.836 billion FactSet consensus.
"In this time of uncertainty, we believe we have ample liquidity and financial flexibility and remain committed to our investment grading," Chief Financial Officer Garth Hankinson said in a statement. "We have significant capacity under our $2 billion revolving credit facility and we plan to carefully manage our debt position over the next 24 months."
Hankinson said the company expects to receive about $850 million in cash from the closing of the sale of its Gallo wines and "we remain focused on prudently navigating the challenging operating environment presented by Covid-19."
Read the full article here
Constellation Brands (NYSE: STZ) latest stock valuation
So what is Constellation Brands (NYSE: STZ) stock worth based on the release of their latest earnings report and fiscal guidance provide? Based on their earnings report and the guidance provided our valuation model provides a target price (full value price) for Constellation Brands of $204.70 a stock (up lightly from our 3rd quarter 2020 earnings report valuation of Constellation Brands). We therefore believe that the stock is undervalued.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $204.70. So a good entry point into Constellation Brands stock would be at $184.20 or below.
We expect the stock of Constellation brands to remain around current levels in the short run until the market settles and the Coronavirus pandemic blows over and life returns to normal across the globe. And we expect the stock of Constellation Brands to surge once some form of normalcy returns to economies across the country.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $204.70. So a good entry point into Constellation Brands stock would be at $184.20 or below.
We expect the stock of Constellation brands to remain around current levels in the short run until the market settles and the Coronavirus pandemic blows over and life returns to normal across the globe. And we expect the stock of Constellation Brands to surge once some form of normalcy returns to economies across the country.
Next earnings release for Constellation Brands
It is expected that Constellation Brands (NYSE: STZ) will release their 1st quarter 2021 earnings report in early July 2020