Constellation Brands Inc. (NYSE: STZ) reported a 36% jump in earnings for the fourth quarter helped by higher income from unconsolidated investments. The results exceeded analysts’ expectations. However, the company guided fiscal 2020 earnings below the consensus estimates. Following this, the stock inched down over 1% in the premarket session
Net income attributable to the company climbed 36% to $1.24 billion and earnings soared 40% to $6.37 per share. Comparable earnings declined 3% to $1.84 per share.
Net sales rose by 2% to $1.8 billion. The company experienced strong portfolio depletion performance backed by Modelo and Corona brand families.
Looking ahead into fiscal 2020, the company expects basis earnings in the range of $8.47 to $8.77 per share and comparable basis earnings of $8.50 to $8.80 per share. The comparable EPS includes the impact of wine and spirits divestiture but excludes Canopy Growth equity earnings, share repurchases and gain or loss on the wine and spirits transaction.
For fiscal 2020, the company predicts the operating cash flow of about $2 billion and free cash flow in the range of $1.1 billion to $1.2 billion. Longer term, the company expects the cash generation capability of its 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. The company intends to drive top-line growth of mid-to-high single digits over the next three to five years across its entire business.
The company expects beer net sales growth of 7% to 9% and sales from wine and spirits to decline by 25% to 30%. Capital expenditures are anticipated to be $800 million to $900 million, including about $600 million targeted for Mexico beer operations expansion activities.
For the fourth quarter, beer sales grew by 9.3% as it was the top US share gainer during the winter holiday season driven by Modelo Especiat, Corona Premier and Corona Familiar. Wine and spirits sales fell by 7.6% as several high-end wine and spirits brands posted double-digit consumer takeaway trends in IRI channels including Kim Crawford, Meiomi, Ruffino, the Prisoner portfolio and High West.
Canopy Growth equity earnings and related activities for the fourth quarter totaled a loss of $2.6 million on a reported basis and $16.5 million on a comparable basis. The company continues to evaluate the future potential equity earnings impact from the Canopy equity method investment and related activities.
Constellation intended to sell a portion of the wine and spirits business to E. & J. Gallo Winery for $1.7 billion. Proceeds from the transaction are expected to be used primarily for the repayment of debt. This is expected to have an approximate $40 million favorable impact on fiscal 2020 interest expense. The transaction is expected to close at the end of the first quarter of fiscal 2020.
As a result of the transaction, a cost reduction plan is expected to be implemented for fiscal 2020 and 2021 to address stranded costs of $130 million. The company expects to incur a restructuring charge for the first quarter of fiscal 2020 after the development of the cost reduction plan.
On April 3, Constellation’s board 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. The dividends are payable on May 24, 2019, to stockholders of record on May 10, 2019. This represents an increase of 1%.
Shares of Constellation Brands ended Wednesday’s regular session up 1.69% at $179.69 on the NYSE. The stock has fallen over 20% in the past year, while it has risen over 11% in the past three months.