Constellation Brands(STZ) - 2026 Q1 - Quarterly Report

Part I – Financial Information Financial Statements The company reported net sales of $2.52 billion and net income of $516.1 million for the quarter ended May 31, 2025, with total assets reaching $22.26 billion and liabilities at $14.73 billion Consolidated Financial Statements Summary Total assets increased to $22.26 billion as of May 31, 2025, with net income at $516.1 million and diluted EPS at $2.90, while operating cash flow was $637.2 million Consolidated Balance Sheet Summary (in millions) | Account | May 31, 2025 | February 28, 2025 | | :--- | :--- | :--- | | Total Current Assets | $3,941.3 | $3,716.4 | | Total Assets | $22,262.7 | $21,652.3 | | Total Current Liabilities | $3,694.1 | $4,035.2 | | Total Liabilities | $14,730.6 | $14,517.5 | | Total Stockholders' Equity | $7,532.1 | $7,134.8 | Consolidated Income Statement Summary (in millions, except per share data) | Account | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net Sales | $2,515.0 | $2,661.8 | | Operating Income | $713.8 | $941.6 | | Net Income Attributable to CBI | $516.1 | $877.0 | | Diluted EPS | $2.90 | $4.78 | Consolidated Cash Flow Summary (in millions) | Activity | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $637.2 | $690.5 | | Net Cash used in Investing Activities | ($196.1) | ($377.4) | | Net Cash used in Financing Activities | ($437.6) | ($393.0) | Notes to Consolidated Financial Statements Detailed notes explain financial figures, covering acquisitions, divestitures, the 2025 Restructuring Initiative, debt financing, a new share repurchase program, and segment performance - In June 2024, the company acquired the Sea Smoke business, a luxury wine brand. On January 6, 2025, it sold the SVEDKA brand. Subsequently, on June 2, 2025, it sold a portion of its mainstream wine business for $857.6 million in net cash proceeds, which were used for debt repayment[28][29][34] - The company is implementing the "2025 Restructuring Initiative" to optimize performance, expecting to incur $80-$100 million in pre-tax costs. As of May 31, 2025, cumulative costs reached $63.0 million, with $13.3 million incurred in the current quarter[35][36] - In April 2025, the Board authorized a new $4.0 billion share repurchase program. During the quarter, the company repurchased 1.63 million shares for $306.1 million[82] Segment Performance - Q1 FY2026 vs Q1 FY2025 (in millions) | Segment | Metric | Q1 2026 | Q1 2025 | | :--- | :--- | :--- | :--- | | Beer | Net Sales | $2,234.5 | $2,272.8 | | | Comparable Operating Income | $873.4 | $923.0 | | Wine and Spirits | Net Sales | $280.5 | $389.0 | | | Comparable Operating Income (Loss) | ($6.0) | $59.7 | Management's Discussion and Analysis (MD&A) Management discusses performance, strategic initiatives like the 2025 Restructuring Initiative and Wine & Spirits repositioning, noting a 6% decline in quarterly net sales and strong liquidity with a new $4.0 billion share repurchase program Overview and Strategy The company's strategy emphasizes brand building, innovation, disciplined capital deployment, and operational efficiency, with a focus on Beer segment leadership, Wine and Spirits repositioning, and the 2025 Restructuring Initiative for cost savings - The Beer segment strategy focuses on upholding its leadership position in the U.S. beer market, increasing distribution for key brands, and continuing to invest in modular capacity additions[109] - The Wine and Spirits strategy is to reposition the business to a portfolio of exclusively higher-end brands to drive higher growth and margins, while expanding into international and direct-to-consumer (DTC) channels[110] - The 2025 Restructuring Initiative is expected to yield over $200 million in net annualized cost savings by Fiscal 2028, with estimated pre-tax costs of $80-$100 million[116] - A key recent strategic action was the June 2, 2025 divestiture of a portion of the wine and spirits business, primarily mainstream brands, for $857.6 million in net cash proceeds[117] Results of Operations Q1 FY2026 saw consolidated net sales decrease 6% to $2.52 billion and operating income fall 24% to $713.8 million, driven by sales declines in both Beer and Wine & Spirits segments and impacted by impairment and restructuring costs Financial Highlights - Q1 FY2026 vs Q1 FY2025 (in millions, except percentages) | Metric | Q1 2026 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,515.0M | $2,661.8M | (6%) | | Operating Income | $713.8M | $941.6M | (24%) | | Net Income (CBI) | $516.1M | $877.0M | (41%) | | Diluted EPS (CBI) | $2.90 | $4.78 | (39%) | Beer Segment Performance - Q1 FY2026 vs Q1 FY2025 (in millions, except cases and percentages) | Metric | Q1 2026 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,234.5M | $2,272.8M | (2%) | | Shipments (cases) | 111.3M | 115.1M | (3.3%) | | Depletions | - | - | (2.6%) | Wine and Spirits Segment Performance - Q1 FY2026 vs Q1 FY2025 (in millions, except cases and percentages) | Metric | Q1 2026 | Q1 2025 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $280.5M | $389.0M | (28%) | | Shipments (cases) | 3.9M | 5.6M | (30.4%) | | Organic Shipments (cases) | 3.9M | 4.5M | (13.3%) | - Operating income was negatively impacted by $96.1 million in Comparable Adjustments, including a $52.1 million impairment on assets held for sale and $13.3 million in restructuring costs[132] Liquidity and Capital Resources The company maintains strong liquidity from $637.2 million in operating cash flow, with total debt at $11.57 billion, and prioritizes capital allocation through a new $4.0 billion share repurchase program and quarterly dividends Summary of Cash Flows (in millions) | Activity | Q1 2026 | Q1 2025 | | :--- | :--- | :--- | | Operating Activities | $637.2 | $690.5 | | Investing Activities | ($196.1) | ($377.4) | | Financing Activities | ($437.6) | ($393.0) | - Total debt outstanding as of May 31, 2025, was $11.57 billion, a slight increase from the previous fiscal year-end[175] - A new $4.0 billion share repurchase program was authorized in April 2025, expiring in February 2028. The company expects to return $4.0 billion to shareholders over the next three fiscal years via this program[191][192] - On July 1, 2025, the Board of Directors declared a quarterly cash dividend of $1.02 per share of Class A Stock[189] Market Risk Disclosures The company manages market risks from foreign currency, commodity prices, and interest rates using derivatives, with 79% of foreign currency and 73% of commodity exposures hedged for the remainder of Fiscal 2026 - The company is exposed to foreign currency risk (primarily MXN, CAD, NZD, EUR), commodity price risk (aluminum, corn, etc.), and interest rate risk[200][201][202] - As of May 31, 2025, 79% of forecasted transactional foreign currency exposures and 73% of commodity exposures for the remaining nine months of Fiscal 2026 were hedged[201][202] Market Risk Sensitivity Analysis (as of May 31, 2025) | Risk Type | Hypothetical Change | Impact on Fair Value (in millions) | | :--- | :--- | :--- | | Foreign Currency Contracts | 10% Adverse Change | ($200.7) | | Fixed Interest Rate Debt | 1% Rate Increase | ($521.7) | Controls and Procedures Management affirmed the effectiveness of disclosure controls and procedures as of May 31, 2025, noting the implementation of a new OneStream consolidation system that modified internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures are effective[207] - A new consolidation system, OneStream, was implemented during the quarter, resulting in changes to internal controls over financial reporting that will be monitored throughout Fiscal 2026[208] Part II – Other Information Legal Proceedings Three derivative complaints were filed against directors and officers in March, April, and June 2025, based on allegations similar to the Meza v. Constellation Brands, Inc. class action - Three derivative complaints were filed against directors and officers in March, April, and June 2025, related to allegations in the existing Meza v. Constellation Brands, Inc. class action lawsuit[212] Share Repurchases The company detailed its share repurchase activity, including a new $4.0 billion authorization in April 2025, with 1,634,718 shares repurchased for $306.1 million during the quarter Issuer Purchases of Equity Securities (Q1 FY2026) (in millions, except shares and price per share) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | April 2025 | 818,638 | $185.71 | ~$152.0 | | May 2025 | 816,080 | $188.75 | ~$154.1 | | Total | 1,634,718 | $187.23 | $306.1 | - In April 2025, the Board of Directors authorized a new repurchase program for up to $4.0 billion of common stock, which expires in February 2028[215]