Constellation Brands, Inc, a leading beverage alcohol company, has reported its first quarter 2014 results. "The recent closing of our transformational beer acquisition has been a rewarding way to kick off fiscal 2014. This deal positions Constellation within the top ranks of the U.S. beer industry and significantly increases the size and scope of our company," said Rob Sands, president and chief executive officer, Constellation Brands.
"From an operational perspective, we are off to a positive start for the year, as we achieved our first quarter goals and objectives. I am particularly pleased with our commercial results as we continued to gain market share in IRI channels across our beer, wine and spirits businesses during the quarter."
Wine and spirits net sales on an organic constant currency basis increased four percent primarily due to an increase in volume. The acquisition of Mark West complemented the organic growth as total net sales increased six percent.
"We experienced positive top line results for our U.S. wine and spirits business in the first quarter driven primarily by our Focus Brands including double-digit depletion trends for Rex Goliath, Kim Crawford, Nobilo, SIMI and Black Box," said Sands. "In addition, we continue to gain traction with our award winning portfolio of new products including Simply Naked, Thorny Rose and The Dreaming Tree."
The decrease in consolidated comparable basis operating income reflects the impact of higher grape and SG&A costs, partially offset by net sales growth.
The company's comparable basis equity earnings from its 50 percent interest in the Crown joint venture totaled $66 million compared to $61 million for the prior year first quarter. For first quarter 2014, Crown generated net sales of $762 million, an increase of five percent, and operating income of $134 million, an increase of nine percent. The increase in net sales and operating income for Crown was driven primarily by volume growth and the benefit of increased product pricing taken in select U.S. markets last fall.
"Crown continues to outperform the U.S. beer market and experienced robust first quarter sales performance driven by Modelo Especial, Corona Light and Pacifico. Strong retail execution by the Crown team and its distributor network drove excellent marketplace execution during the first quarter," said Sands. "In addition, Crown's creative lineup of product advertising and promotions is well positioned for the key summer selling season."
Interest expense totaled $55 million, an increase of eight percent. The increase was primarily due to higher average borrowings.
The comparable basis effective tax rate for first quarter 2014 was 36.2 percent, compared to a 36.4 percent rate for the prior year first quarter.
"As a result of our improved credit profile and the attractive interest rate environment, we were able to obtain an attractive financing package for the beer transaction and lower our expected interest expense projection for the year," said Bob Ryder, chief financial officer, Constellation Brands.
The company completed its acquisition of Grupo Modelo's U.S. beer business from Anheuser-Busch InBev for approximately $4.75 billion on June 7, 2013. The transaction includes full ownership of Crown Imports LLC which provides Constellation with complete, independent control of the U.S. commercial business; a state-of-the-art brewery in Nava (Piedras Negras), Mexico; an exclusive perpetual brand license in the U.S. to import, market and sell Corona and the other Modelo brands Crown currently sells in the U.S. market with the freedom to develop brand extensions and innovations.
The capital expenditures projection includes approximately $120 - $140 million for expansion activities related to the Piedras Negras brewery. One-time costs associated with the beer business acquisition and tax rate projections factored in the guidance outlined above are based on preliminary estimates.
