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STZ - Constellation Brands Inc
$232.88
0.74(0.32%)8:01:45 PM 5/26/2023
Constellation Brands, Inc., a Fortune 500 company, is an American producer and marketer of beer, wine and spirits. Constellation is the largest beer import company in the US, measured by sales, and has the third-largest market share of all major beer suppliers. It also has investments in medical and recreational cannabis. Based in Victor, New York, Constellation has about 40 facilities and approximately 9,000 employees. The company has more than 100 brands in its portfolio. Wine brands include Robert Mondavi, Richards Wild Irish Rose, Ravenswood Winery, Wild Horse Winery, Clos du Bois, Franciscan Estates, Kim Crawford, Meiomi, Mark West, Ruffino, and The Prisoner. Constellation's beer portfolio includes imported brands such as Corona, Modelo Especial, Negra Modelo, and Pacífico, as well as American craft beer producer Funky Buddha. Spirits brands include Svedka Vodka, Casa Noble Tequila and High West Whiskey, Nelson's Green Brier Tennessee Whiskey.

Financials

Quarterly financials
(USD)Feb 2023Q/Q
Revenue-5.5B-324%
Gross Profit-2.8B-332%
Cost Of Revenue1B-14%
Operating Income466.7MM-37%
Operating Expenses-3.3B-
Net Income517MM+11%
G&A494.5MM+3%

Revenue Breakdowns

The revenue breakdowns above are extracted from this specific SEC Edgar 10-Q filling, with report date as 2022-11-30 and filed on 2023-01-05. The process is fully automated and without human validation. Although we make every effort getting the relevant information, please be advised that We make no representation or warranties of any kind about completeness, accuracy, reliability, suitability or availability of the information exacted from Edgar 10-K/10-Q filings.

Highlights of Management Discussion and Risk Factors in 10-K/10-Q filling

Positive
1.
We are the third-largest beer company in the U.S. and continue to strengthen our leadership position as the #1 high-end beer supplier and the #1 share gainer across the U.S. beer market.
2.
Within wine and spirits, we are making solid progress in refining our brand portfolio to shift to a higher-end focused business to deliver net sales growth and margin expansion.
3.
We also believe a key component to driving faster growth rates is to invest in and strengthen our leadership position within the DTC and 3-tier eCommerce channels.
4.
Our business strategy for the Beer segment focuses on upholding our leadership position in the high-end segment of the U.S. beer market through maintenance of leading margins, enhancements to our results of operations and operating cash flow, and exploring new avenues for growth.
5.
The favorable product mix and decrease in branded wine and spirits shipment volume are attributable to the consumer-led premiumization and mix improvements of our portfolio.
6.
Our ability to consistently generate robust cash flow from our operations is one of our most significant financial strengths; it enables us to invest in our people and our brands, make capital investments and strategic acquisitions, provide a cash dividend program, and from time-to-time, repurchase shares of our common stock.
7.
Constellation Brands, Inc. Q3 FY 2023 Form 10-Q#WORTHREACHINGFOR    I    44MD&ATable of Contentsin unrealized net loss from the changes in fair value of our investment in Canopy and (ii) improvements within the Beer segment.
8.
As a part of our strategy, we have launched Digital Business Acceleration which we believe will enable us to drive results by enhancing our business in key areas including procurement, end-to-end supply chain planning, and marketing optimization.
9.
StrategyBusiness strategyOur overall strategic vision is to consistently deliver industry-leading total stockholder returns over the long-term through a focus on these key pillars:•continue building strong brands people love with advantaged routes to market;•build a culture that is consumer-obsessed and leverages robust innovation capabilities to stay on the forefront of consumer trends; and•deliver on impactful ESG initiatives that we believe are not only good business, but also good for the world.
10.
We will continue to strive for success by ensuring consumer-led decision making drives all aspects of our business; building a diverse talent pipeline with best-in-class people development; investing in data systems, architecture, and infrastructure that enables our business; and exemplifying intentional and proactive balance sheet management.
11.
The remaining Mexicali Brewery net assets have met held for sale criteria as of November 30, 2022.Our business strategy for the Wine and Spirits segment focuses on higher-end brands, improving margins, and creating operating efficiencies.
12.
Our strategic relationship with Canopy, which will continue through the completion of the Canopy Transaction including the conversion of our Canopy common shares into Exchangeable Shares, is designed to help position it to be successful in cannabis production, branding, and intellectual property.
13.
We have seen consumers shift more of their total shopping spend to online channels since the COVID-19 outbreak, which has led to increased eCommerce sales, including DTC, for our business.
14.
Additionally, in an effort to compete more fully in growing sectors of the high-end segment of the U.S. beer market, we have leveraged our innovation capabilities to create new line extensions behind celebrated, trusted brands and package formats that are intended to meet emerging needs.
15.
We place focus on positioning our portfolio on higher-margin, higher-growth categories of the beverage alcohol industry to align with consumer-led premiumization trends, which we believe will continue to drive faster growth rates across beer, wine, and spirits.
16.
We remain committed to our long-term financial model of: growing sales, expanding margins, and increasing cash flow in order to achieve earnings per share growth, maintain our target net leverage ratio and dividend payout ratio, invest to support the growth of our business, and deliver additional returns to stockholders through periodic share repurchases.
17.
In the U.S., we are one of the top growth contributors at retail among beverage alcohol suppliers.
18.
We expect to have continued access to capital markets and to be able to continue to return value to stockholders through dividends and periodic share repurchases.
19.
While each team has its own distinct strategy, both remain aligned to the goal of accelerating performance by growing net sales and expanding margins.
20.
In response to COVID-19, we have ensured our on-going liquidity and financial flexibility through cash preservation initiatives, capital management adjustments, and cost control measures.
21.
The increase in Beer net sales is largely due to (i) $77.0 million of favorable impact from pricing in select markets within our Mexican beer portfolio, (ii) $49.7 million of shipment volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, and (iii) $12.8 million of favorable product mix primarily from a shift in package sizes.
22.
Constellation Brands, Inc. Q3 FY 2023 Form 10-Q#WORTHREACHINGFOR    I    34MD&ATable of ContentsESG strategyWe believe our ESG strategy enables us to better meet stakeholder expectations, reflect our Company values, and directly address pressing environmental and societal needs that are important to our communities, consumers, and employees.
23.
The increase in Beer net sales is largely due to (i) $549.8 million of shipment volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, and (ii) $210.3 million of favorable impact from pricing in select markets within our Mexican beer portfolio, partially offset by $13.1 million of unfavorable product mix primarily from a shift in package types.
24.
The strength of our brands makes us a supplier of choice to many of our consumers and our customers, which include wholesale distributors, retailers, and on-premise locations.
25.
For the remainder of Fiscal 2023, we expect U.S. depletion volume to exceed U.S. shipment volume.
26.
The increase in organic net sales is driven by (i) a $49.2 million increase from favorable product mix and (ii) $10.9 million of favorable impact from pricing, partially offset by a $50.5 million decrease in branded wine and spirits shipment volume.
27.
We continue to refine our portfolio primarily through an enhanced focus on higher-margin, higher-growth wine and spirits brands.
28.
In addition, we continue to identify on-going cost savings initiatives, including our commodity and foreign exchange hedging programs.
29.
Our recent divestiture and acquisitions support our strategic focus on consumer-led premiumization trends and meeting the evolving needs of our consumers.
30.
Also includes $115.6 million and $70.7 million of costs designed to improve their organizational focus, streamline operations, and align production capability with projected demand for Nine Months 2023 and Nine Months 2022, respectively.
31.
Canopy gross profit (loss) increased to $2.9 million for Third Quarter 2023 from $(56.5) million for Third Quarter 2022.
32.
Our business continues to progressively expand into DTC channels (including hospitality), 3-tier eCommerce, and international markets, while continuing to grow in U.S. 3-tier brick-and-mortar distribution.
33.
and eliminations123.9 26.6 97.3 NMComparable Adjustments(47.2)31.3 (78.5)NMConsolidated gross profit$3,807.8 $3,574.7 $233.1 7 %The increase in Beer gross profit is primarily due to $298.6 million of shipment volume growth and the $210.3 million favorable impact from pricing, partially offset by $160.7 million of higher cost of product sold and $29.9 million of unfavorable product mix.
34.
The increase in organic gross profit is attributable to a $40.3 million increase from favorable product mix, partially offset by (i) a $25.6 million decrease in branded wine and spirits shipment volume and (ii) $12.3 million of higher cost of product sold.
35.
This includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, including within the DTC and 3-tier eCommerce channels, as well as continued expansion, optimization, and/or construction activities for our Mexico beer operations.
Negative
1.
The increase in net sales was hindered by global supply chain constraints.
2.
Shipment volume growth was muted in Third Quarter 2023 due to a Third Quarter 2022 focus on replenishing product inventories.
3.
In addition, during Fiscal 2022, we experienced a brown glass purchasing shortage, which impacted certain of our imported beer brands.
4.
Additionally, other consumer products sales in Nine Months 2023 as compared to Nine Months 2022 decreased driven by declines in their Storz & Bickel GmbH & Co. KG and This Works Products Limited businesses.
5.
The decline in cannabis sales primarily resulted from decreases in (i) Canadian recreational cannabis sales volume, largely driven by continuing impacts of price compression resulting from increased competition and from Canopy’s strategic decision to shift their focus to premium and mainstream products and (ii) medicinal sales driven by the January 2022 divestiture of C3, an international pharmaceutical business.
6.
For additional information regarding our equity method investments, refer to Notes 4 and 7.Constellation Brands, Inc. Q3 FY 2023 Form 10-Q#WORTHREACHINGFOR    I    48MD&ATable of ContentsCanopy segmentCanopy net sales decreased to $264.7 million for Nine Months 2023 from $332.4 million for Nine Months 2022.
7.
The decrease in organic net sales was also affected by an unfavorable impact from pricing, driven by increases in promotional activity, largely offset by price increases and a contractual distributor payment.
8.
The decrease in Wine and Spirits operating income is largely attributable to the decline in branded wine and spirits shipment volume, the increase in cost of product sold, the 2022 Wine Divestiture, and increased general and administrative expenses, as described above, partially offset by the favorable product mix shift and the lower marketing spend.
9.
The decline in cannabis sales primarily resulted from decreases in (i) 
10.
The combination of these factors were the main contributors to the decrease in operating loss of $36.4 million.
11.
Additionally, we continue to work with government officials in Mexico in connection with our canceled Mexicali Brewery construction project following a negative result from a public consultation held in Mexico.
12.
Our results of operations and financial condition have been affected by inflation, changing prices, and reductions in discretionary income of consumers available to purchase our products, as well as other unfavorable global and regional economic conditions, geopolitical events, and military conflicts, such as repercussions from the conflict in Ukraine.
13.
This decrease of $97.3 million is primarily driven by (i) a net increase in inventory write-downs as compared to Nine Months 2022, (ii) decreased net sales and price compression in the Canadian recreational channel, (iii) unfavorable product mix shift, and (iv) a decrease in payroll subsidies received from the Canadian government in Nine Months 2022 pursuant to a COVID-19 relief program.
14.
Our conclusion was based on several contributing factors, including: (i) the period of time for which the fair value had been less than the carrying value and the uncertainty surrounding Canopy’s stock price recovering in the near-term, (ii) Canopy recording a significant impairment of goodwill related to its cannabis operations during its three months ended June 30, 2022, and (iii) the uncertainty of U.S. federal cannabis permissibility.
15.
Canopy gross profit (loss) decreased to $(123.9) million for Nine Months 2023 from $(26.6) million for Nine Months 2022.
16.
Organic (1)6.9 7.9 (12.7 %)U.S. Domestic6.0 7.0 (14.3 %)Organic U.S. Domestic (1)6.0 6.8 (11.8 %)Depletions (1)(5.6 %)(1)Includes an adjustment to remove volume associated with the 2022 Wine Divestiture for the period October 6, 2021, through November 30, 2021.The decrease in Wine and Spirits net sales is due to $17.4 million from the 2022 Wine Divestiture and a $6.0 million decrease in organic net sales.
17.
This decrease of $67.7 million, or 20%, is largely attributable to lower cannabis sales, partially offset by growth in their BioSteel Sports Nutrition Inc. business.
18.
This decrease of $14.1 million, or 14%, is largely attributable to lower cannabis sales, partially offset by growth in their BioSteel Sports Nutrition Inc. business.
19.
The decrease in organic net sales is driven by (i) a $53.5 million decrease in branded wine and spirits shipment volume partially offset by $50.5 million of favorable product mix both of which are attributable to the consumer-led premiumization and mix improvements of our portfolio.
20.
Gross profit as a percent of net sales decreased to 50.4% for Third Quarter 2023 compared with 52.8% for Third Quarter 2022.
21.
The decrease in Wine and Spirits operating income is largely attributable to the increases in cost of product sold and general and administrative expenses, as described above, the decline in branded wine and spirits shipment volume, and the 2022 Wine Divestiture, partially offset by the favorable product mix shift, increase in non-branded net sales, the favorable pricing impact, and lower marketing spend.
22.
For additional information, refer to Note 9.Net income (loss) attributable to CBINet income (loss) attributable to CBI decreased to $467.7 million for Third Quarter 2023 from $470.8 million for Third Quarter 2022.
23.
Constellation Brands, Inc. Q3 FY 2023 Form 10-Q#WORTHREACHINGFOR    I    49MD&ATable of ContentsNet income (loss) attributable to CBINet loss attributable to CBI decreased to $294.0 million for Nine Months 2023 from $435.8 million for Nine Months 2022.
24.
For example, wine produced in New Zealand and Italy and subsequently shipped to the U.S. for distribution continues to be affected by increased costs of ocean freight shipping.
25.
Gross profit as a percent of net sales decreased to 51.1% for Nine Months 2023 compared with 53.2% for Nine Months 2022.
26.
Furthermore, to the extent climate-related severe weather events, such as droughts, floods, wildfires, and/or late frosts, continue to occur or accelerate in future periods, it could have a material impact on our results of operations and financial condition.
The management discussion contents above are extracted from this specific SEC Edgar 10-Q filling, with report date as 2022-11-30 and filed on 2023-01-05. The process is fully automated and without human validation. Although we make every effort getting the relevant information, please be advised that We make no representation or warranties of any kind about completeness, accuracy, reliability, suitability or availability of the information exacted from Edgar 10-K/10-Q filings.
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