Constellation Brands(STZ) - 2024 Q3 - Quarterly Report

FORM 10-Q Cover Page Table of Contents DEFINED TERMS PART I – FINANCIAL INFORMATION - Financial statements are unaudited, prepared according to SEC quarterly reporting rules, with all adjustments being normal recurring adjustments[30] - Effective May 31, 2023, the company's internal management financial reporting was adjusted to two business units (Beer and Wine & Spirits) and three reporting segments (Beer, Wine & Spirits, and Corporate Operations & Other), removing the Canopy Operations segment, with all financial information restated to conform to the new segment presentation[31] Item 1. Financial Statements This section presents Constellation Brands, Inc. and its subsidiaries' unaudited consolidated financial statements as of November 30, 2023, including balance sheets, comprehensive income (loss) statements, changes in stockholders' equity, and cash flow statements, along with detailed notes on presentation basis, inventories, derivatives, fair value of financial instruments, goodwill, intangible assets, equity method investments, borrowings, income taxes, stockholders' equity, net income (loss) per share, comprehensive income, and business segment information Consolidated Balance Sheets The consolidated balance sheets show the company's financial position as of November 30, 2023, compared to February 28, 2023, with increases in total assets and stockholders' equity, and a decrease in total liabilities | Metric | Nov 30, 2023 (in millions) | Feb 28, 2023 (in millions) | Change (in millions) | | :----------------------------- | :------------------------- | :------------------------- | :------------------- | | Total Assets | $25,057.4 | $24,662.3 | $395.1 | | Total Liabilities | $15,259.0 | $15,928.4 | $(669.4) | | Total Stockholders' Equity | $9,798.4 | $8,733.9 | $1,064.5 | | Cash and cash equivalents | $78.7 | $133.5 | $(54.8) | | Inventories | $1,988.0 | $1,898.7 | $89.3 | | Short-term borrowings | $458.9 | $1,165.3 | $(706.4) | | Long-term debt (less current maturities) | $10,282.3 | $11,286.5 | $(1,004.2) | Consolidated Statements of Comprehensive Income (Loss) For the nine and three months ended November 30, 2023, net income and comprehensive income attributable to CBI significantly improved year-over-year, driven by growth in net sales and operating income | Metric | 9 Months Ended Nov 30, 2023 (in millions) | 9 Months Ended Nov 30, 2022 (in millions) | Change (YoY) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :----------- | | Net Sales | $7,822.6 | $7,454.8 | +$367.8 | | Operating Income (Loss) | $2,540.3 | $2,376.2 | +$164.1 | | Net Income (Loss) Attributable to CBI | $1,335.0 | $(294.0) | +$1,629.0 | | Diluted EPS (Class A Stock) | $7.25 | $(1.48) | +$8.73 | | Cash Dividends Declared per Class A Share | $2.67 | $2.40 | +$0.27 | | Metric | 3 Months Ended Nov 30, 2023 (in millions) | 3 Months Ended Nov 30, 2022 (in millions) | Change (YoY) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :----------- | | Net Sales | $2,470.9 | $2,436.5 | +$34.4 | | Operating Income (Loss) | $796.9 | $746.7 | +$50.2 | | Net Income (Loss) Attributable to CBI | $509.1 | $467.7 | +$41.4 | | Diluted EPS (Class A Stock) | $2.76 | $2.52 | +$0.24 | | Cash Dividends Declared per Class A Share | $0.89 | $0.80 | +$0.09 | Consolidated Statements of Changes in Stockholders' Equity The statement of changes in stockholders' equity details movements for the nine months ended November 30, 2023, and 2022, showing an increase in total equity primarily from comprehensive income and equity incentive plans, partially offset by dividends and share repurchases | Metric | Nov 30, 2023 (in millions) | Feb 28, 2023 (in millions) | Change (in millions) | | :----------------------------- | :------------------------- | :------------------------- | :------------------- | | Total Stockholders' Equity | $9,798.4 | $8,733.9 | $1,064.5 | | Retained Earnings | $13,187.6 | $12,343.9 | $843.7 | | Treasury Stock | $(6,102.3) | $(5,863.9) | $(238.4) | - For the nine months ended November 30, 2023, the company repurchased 1,043,366 shares of Class A common stock for a total cost of $249.7 million under the 2021 authorization[86] Consolidated Statements of Cash Flows For the nine months ended November 30, 2023, net cash provided by operating activities increased, net cash used in investing activities also increased, while net cash used in financing activities decreased year-over-year | Cash Flow Activity | 9 Months Ended Nov 30, 2023 (in millions) | 9 Months Ended Nov 30, 2022 (in millions) | Change (in millions) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | | Net cash provided by operating activities | $2,346.8 | $2,280.6 | +$66.2 | | Net cash used in investing activities | $(929.9) | $(646.6) | $(283.3) | | Net cash used in financing activities | $(1,472.4) | $(1,645.9) | +$173.5 | | Net increase (decrease) in cash and cash equivalents | $(54.8) | $(14.4) | $(40.4) | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering accounting policies, balance sheet items, derivatives, fair value measurements, goodwill, intangible assets, equity method investments, borrowings, income taxes, stockholders' equity, earnings per share, comprehensive income, business segment information, and subsequent events 1. Basis of Presentation The financial statements are unaudited, prepared under SEC quarterly reporting rules, with all adjustments being normal recurring adjustments, and the company adjusted its internal management financial reporting structure effective May 31, 2023, restating prior period financial information to conform to the new segment presentation - Financial statements are unaudited and reflect normal recurring adjustments[30] - Effective May 31, 2023, the company adjusted its reporting structure to three segments: Beer, Wine & Spirits, and Corporate Operations & Other, removing the Canopy Operations segment, with prior period data restated[31] 2. Inventories Inventories are measured at the lower of cost (primarily FIFO) or net realizable value, with total inventories increasing to $1.988 billion as of November 30, 2023, from $1.8987 billion as of February 28, 2023 | Inventory Component | Nov 30, 2023 (in millions) | Feb 28, 2023 (in millions) | | :------------------ | :------------------------- | :------------------------- | | Raw materials and supplies | $244.0 | $245.5 | | In-process inventories | $1,098.9 | $967.8 | | Finished case goods | $645.1 | $685.4 | | Total Inventories | $1,988.0 | $1,898.7 | 3. Derivative Instruments The company uses derivative instruments, including foreign currency and pre-issuance hedge contracts, to manage market risks, with a total notional value of outstanding derivatives at $2.8122 billion as of November 30, 2023 | Derivative Type | Notional Value (Nov 30, 2023, in millions) | Notional Value (Feb 28, 2023, in millions) | | :--------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Foreign currency contracts (designated) | $2,233.3 | $1,969.5 | | Pre-issuance hedge contracts (designated) | $125.0 | $— | | Foreign currency contracts (undesignated) | $578.9 | $831.7 | | Commodity derivative contracts (undesignated) | $383.9 | $416.5 | - The company expects to reclassify $130.2 million of net gains (net of income tax impact) from accumulated other comprehensive income (AOCI) to operating results within the next 12 months[38] 4. Fair Value of Financial Instruments The company measures financial instruments' fair value using a three-level hierarchy, with most derivatives and long-term debt valued using Level 2 inputs, and the 2023 Canopy promissory note valued at zero due to significant doubt about Canopy's going concern ability - As of May 31, 2023, the 2023 Canopy promissory note was determined to have no future economic value due to significant doubt about Canopy's ability to continue as a going concern, resulting in its fair value being reduced to zero[45] | Financial Instrument | Fair Value (Nov 30, 2023, in millions) | Fair Value (Feb 28, 2023, in millions) | | :------------------- | :------------------------------------- | :------------------------------------- | | Foreign currency contracts (assets) | $326.9 | $249.5 | | Commodity derivative contracts (assets) | $9.5 | $25.8 | | Long-term debt (carrying amount) | $11,239.6 | $11,296.0 | | Long-term debt (estimated fair value) | $10,320.7 | $10,236.0 | 5. Goodwill Goodwill increased to $7.9782 billion as of November 30, 2023, from $7.9254 billion as of February 28, 2023, primarily due to purchase accounting allocations for acquisitions and foreign currency translation adjustments, following the divestiture of the craft beer business in June 2023 and a wine business divestiture in October 2022 | Segment | Goodwill (Nov 30, 2023, in millions) | Goodwill (Feb 28, 2023, in millions) | | :------ | :----------------------------------- | :----------------------------------- | | Beer | $5,235.2 | $5,188.9 | | Wine and Spirits | $2,743.0 | $2,736.5 | | Consolidated | $7,978.2 | $7,925.4 | - The company completed the divestiture of its craft beer business in June 2023 and sold certain mainstream and premium wine brands in October 2022, realizing a net gain of $13.8 million from the latter[58][59] 6. Intangible Assets Total intangible assets slightly increased to $2.7322 billion as of November 30, 2023, from $2.7281 billion as of February 28, 2023, primarily comprising nonamortizable trademarks | Intangible Asset Type | Net Carrying Amount (Nov 30, 2023, in millions) | Net Carrying Amount (Feb 28, 2023, in millions) | | :-------------------- | :---------------------------------------------- | :---------------------------------------------- | | Amortizable intangible assets | $16.8 | $17.7 | | Nonamortizable intangible assets (Trademarks) | $2,715.4 | $2,710.4 | | Total Intangible Assets | $2,732.2 | $2,728.1 | 7. Equity Method Investments Equity method investments significantly decreased to $233.3 million as of November 30, 2023, from $663.3 million as of February 28, 2023, primarily due to impairments of the Canopy equity method investment and other corporate venture investments | Investment Type | Carrying Value (Nov 30, 2023, in millions) | Carrying Value (Feb 28, 2023, in millions) | | :------------------------------ | :----------------------------------------- | :----------------------------------------- | | Canopy Equity Method Investment | $73.6 | $485.8 | | Other equity method investments | $159.7 | $177.5 | | Total Equity Method Investments | $233.3 | $663.3 | - As of May 31, 2023, the Canopy equity method investment was impaired by $123.5 million due to its fair value falling below carrying value, Canopy's financial distress, and significant misstatements in reported sales[55][136] - The company plans to convert its Canopy common shares into non-voting, non-participating Exchangeable Shares upon completion of the Canopy transaction and terminate existing agreements with Canopy, subject to shareholder approval[69][139] 8. Borrowings Total borrowings decreased by $762.8 million to $11.6985 billion as of November 30, 2023, from February 28, 2023, primarily due to term loan and commercial paper repayments, partially offset by new senior notes issuance | Borrowing Type | Nov 30, 2023 (in millions) | Feb 28, 2023 (in millions) | Change (in millions) | | :----------------------------- | :------------------------- | :------------------------- | :------------------- | | Short-term borrowings | $458.9 | $1,165.3 | $(706.4) | | Long-term debt (current maturities) | $957.3 | $9.5 | +$947.8 | | Long-term debt (less current maturities) | $10,282.3 | $11,286.5 | $(1,004.2) | | Total Borrowings | $11,698.5 | $12,461.3 | $(762.8) | - The company issued $750.0 million of 4.90% Senior Notes in May 2023, using the net proceeds to repay existing debt[78][216] - The company repaid outstanding three-year and five-year term loans in May and August 2023, respectively[72][215] 9. Income Taxes For the nine months ended November 30, 2023, the effective tax rate significantly decreased to 21.3% from 305.7% in the prior year, primarily due to a smaller increase in valuation allowance related to the Canopy investment and benefits from lower effective tax rates in foreign operations | Period | Effective Tax Rate | | :--------------------------------------- | :----------------- | | 9 Months Ended Nov 30, 2023 | 21.3% | | 9 Months Ended Nov 30, 2022 | 305.7% | | 3 Months Ended Nov 30, 2023 | 20.0% | | 3 Months Ended Nov 30, 2022 | 21.5% | - The significant decrease in the nine-month effective tax rate is primarily due to a smaller increase in the valuation allowance related to the Canopy investment in 2023 compared to 2022, and benefits from lower effective tax rates in foreign operations[81][82] 10. Stockholders' Equity The Board of Directors authorized an additional $2.0 billion share repurchase program in November 2023, supplementing the existing 2021 authorization, with $249.7 million of Class A common stock repurchased under the 2021 authorization as of November 30, 2023 - The Board of Directors authorized a new $2.0 billion share repurchase program (2023 authorization) in November 2023, supplementing the existing 2021 authorization[86] | Authorization | Total Authorized (in millions) | Dollar Value Repurchased (Nov 30, 2023, in millions) | Number of Shares Repurchased (Nov 30, 2023) | | :---------------- | :----------------------------- | :--------------------------------------------------- | :------------------------------------------ | | 2021 Authorization | $2,000.0 | $1,386.3 | 5,875,276 | | 2023 Authorization | $2,000.0 | $— | — | 11. Net Income (Loss) Per Common Share Attributable to CBI Diluted net income per Class A common share attributable to CBI increased to $7.25 for the nine months ended November 30, 2023, from ($1.48) in the prior year, and to $2.76 for the three months ended November 30, 2023, from $2.52 in the prior year | Metric | 9 Months Ended Nov 30, 2023 | 9 Months Ended Nov 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to CBI | $1,335.0 million | $(294.0) million | | Diluted EPS – Class A Stock | $7.25 | $(1.48) | | Weighted average common shares outstanding – diluted (Class A Stock) | 184.096 million | 164.573 million | | Metric | 3 Months Ended Nov 30, 2023 | 3 Months Ended Nov 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to CBI | $509.1 million | $467.7 million | | Diluted EPS – Class A Stock | $2.76 | $2.52 | | Weighted average common shares outstanding – diluted (Class A Stock) | 184.170 million | 185.291 million | 12. Comprehensive Income (Loss) Attributable to CBI Comprehensive income attributable to CBI significantly increased to $1.6709 billion for the nine months ended November 30, 2023, from ($82.2 million) in the prior year, driven by net income and foreign currency translation adjustments | Metric | 9 Months Ended Nov 30, 2023 (in millions) | 9 Months Ended Nov 30, 2022 (in millions) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net income (loss) attributable to CBI | $1,335.0 | $(294.0) | | Other comprehensive income (loss) attributable to CBI | $335.9 | $211.8 | | Comprehensive income (loss) attributable to CBI | $1,670.9 | $(82.2) | | Metric | 3 Months Ended Nov 30, 2023 (in millions) | 3 Months Ended Nov 30, 2022 (in millions) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net income (loss) attributable to CBI | $509.1 | $467.7 | | Other comprehensive income (loss) attributable to CBI | $(70.0) | $154.5 | | Comprehensive income (loss) attributable to CBI | $439.1 | $622.2 | 13. Business Segment Information Effective May 31, 2023, the company reorganized its reporting segments into Beer, Wine & Spirits, and Corporate Operations & Other, removing Canopy, with the Beer segment continuing to drive net sales and operating income growth, while the Wine & Spirits segment experienced a decline - The company's reporting segments are now Beer, Wine & Spirits, and Corporate Operations & Other, with Canopy removed as a reportable segment due to impairment factors and no longer being reviewed by the chief operating decision maker[94] | Segment (9 Months Ended Nov 30) | 2023 Net Sales (in millions) | 2022 Net Sales (in millions) | 2023 Operating Income (in millions) | 2022 Operating Income (in millions) | | :------------------------------ | :--------------------------- | :--------------------------- | :---------------------------------- | :---------------------------------- | | Beer | $6,459.8 | $5,929.4 | $2,509.0 | $2,338.4 | | Wine and Spirits | $1,362.8 | $1,525.4 | $287.6 | $325.2 | | Corporate Operations and Other | N/A | N/A | $(181.8) | $(218.7) | | Consolidated | $7,822.6 | $7,454.8 | $2,540.3 | $2,376.2 | | Segment (3 Months Ended Nov 30) | 2023 Net Sales (in millions) | 2022 Net Sales (in millions) | 2023 Operating Income (in millions) | 2022 Operating Income (in millions) | | :------------------------------ | :--------------------------- | :--------------------------- | :---------------------------------- | :---------------------------------- | | Beer | $1,968.5 | $1,891.9 | $757.3 | $710.0 | | Wine and Spirits | $502.4 | $544.6 | $127.6 | $134.8 | | Corporate Operations and Other | N/A | N/A | $(65.1) | $(75.1) | | Consolidated | $2,470.9 | $2,436.5 | $796.9 | $746.7 | 14. Subsequent Event In December 2023, the company recorded $37.0 million in business interruption and other insurance recoveries related to the Nava brewery shutdown in early 2021 due to severe winter weather, and is currently seeking additional recoveries from other insurers - In December 2023, the company recorded $37.0 million in insurance recoveries for losses incurred from the Nava brewery shutdown in 2021[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an in-depth analysis of the company's business, strategy, financial condition, cash flows, and results of operations, highlighting key drivers, comparability adjustments, and future outlook Introduction This introduction outlines the structure of Management's Discussion and Analysis (MD&A), covering business overview, strategy, results of operations, liquidity and capital resources, and forward-looking statements - The MD&A provides information on the business, current developments, financial condition, cash flows, and results of operations, and should be read in conjunction with the financial statements and the 2023 Annual Report[106] Overview Constellation Brands is an international producer and marketer of beer, wine, and spirits, holding a leading position in the US high-end beer market and a reshaped, premium-focused wine and spirits portfolio, having reorganized its reporting segments effective May 31, 2023, to include Beer, Wine & Spirits, and Corporate Operations & Other - Constellation Brands is one of the largest growth contributors among US beverage alcohol suppliers, the third-largest beer company in the US, and maintains a leading position as the 1 high-end beer supplier and 1 market share growth in the US beer market[110] - The company's reporting segments are now Beer, Wine & Spirits, and Corporate Operations & Other, with the Canopy Operations segment removed[111][112] Strategy The company's strategy focuses on achieving industry-leading total shareholder returns through consumer-led premiumization, organic growth, targeted investments, and strengthening its position in DTC and three-tier e-commerce channels, while also committing to ESG initiatives Business strategy The business strategy emphasizes consumer-led premiumization, organic growth, and targeted investments, focusing on strengthening leadership in the US high-end beer market and improving profitability in the Wine & Spirits segment through premium brands and omnichannel expansion - The company's strategic vision is to consistently deliver industry-leading total shareholder returns by building a consumer-obsessed culture, leveraging strong innovation capabilities, deploying disciplined and balanced capital, and implementing impactful ESG initiatives[114][115] - The Beer segment strategy includes expanding distribution of key brands (including three-tier e-commerce channels) and continuing brewery expansion, optimization, and/or construction activities in Mexico, with capital expenditures for the Beer segment projected to be approximately $4.0 billion from fiscal year 2024 through fiscal year 2028[115][117] - The Wine & Spirits segment strategy focuses on premium brands, margin enhancement, and expansion into DTC, three-tier e-commerce, and international markets[118] ESG strategy The ESG strategy focuses on environmental stewardship (water availability, GHG emission reduction, waste reduction), social equity (women's career development, economic development, inclusive workplace), and promoting responsible alcohol consumption - The company aims to restore a total of 5.0 billion gallons of water from watersheds near its production facilities between fiscal years 2023 and 2025[125] - In the third quarter of fiscal year 2024, the company advanced its ESG strategy by investing in a water quality project in Nogales, Arizona, and partnering with Responsibility.org and Uber to promote responsible consumption messages and safe ride programs[125][126] Recent Development In December 2023, the company recorded $37.0 million in business interruption and other insurance recoveries related to the Nava brewery shutdown in early 2021 due to severe winter weather, and is currently seeking additional recoveries from other insurers - In December 2023, the company recorded $37.0 million in insurance recoveries for losses incurred from the Nava brewery shutdown due to severe winter weather in 2021[125] Divestitures, acquisitions, and investments The company completed the divestiture of its craft beer business in June 2023 and sold the Daleville facility in May 2023, aligning with its focus on high-end imported beer, while in the Wine & Spirits segment, it acquired Austin Cocktails and Lingua Franca in 2022, and equity method investments, particularly Canopy, suffered significant impairments due to underperformance and financial issues - The company completed the divestiture of its craft beer business in June 2023 and sold the Daleville facility in May 2023, aligning with its strategy to focus on high-end imported beer[127][128] - The company acquired Austin Cocktails (April) and Lingua Franca (March) in 2022 to support the consumer-led premiumization trend in the Wine & Spirits segment[130][131][132] - As of May 31, 2023, the Canopy equity method investment was impaired by $123.5 million due to Canopy's financial distress and stock price uncertainty[136] Results of Operations The company's results for the third quarter and nine months of fiscal year 2024 show growth in net sales and operating income, primarily driven by strong performance in the Beer segment and reduced accelerated investments in digital businesses, partially offset by a decline in the Wine & Spirits segment Financial Highlights In the third quarter of fiscal year 2024, net sales grew 1% and operating income grew 7%, driven by Beer segment improvements and reduced Corporate Operations & Other investments, while for the nine months of fiscal year 2024, net sales grew 5% and operating income grew 7%, also benefiting from strong Beer segment performance and reduced Canopy-related losses | Metric (3 Months Ended Nov 30) | 2023 | 2022 | Change (YoY) | | :----------------------------- | :--- | :--- | :----------- | | Net Sales | +1% | | | | Operating Income | +7% | | | | Net Income Attributable to CBI | +9% | | | | Diluted EPS Attributable to CBI | +10% | | | | Metric (9 Months Ended Nov 30) | 2023 | 2022 | Change (YoY) | | :----------------------------- | :--- | :--- | :----------- | | Net Sales | +5% | | | | Operating Income | +7% | | | | Net Income (Loss) Attributable to CBI | Increased | | | | Diluted Net Income (Loss) Per Common Share Attributable to CBI | Increased | | | Comparable Adjustments Management excludes certain comparability adjustments from segment operating results to reflect core business operations, including net gains/losses on undesignated commodity derivatives, inventory step-up, strategic business development costs, and gains/losses on business divestitures - Comparable adjustments are excluded from segment operating results to more clearly reflect core business operations and are used for evaluating segment performance and incentive compensation[145] | Comparable Adjustment (3 Months Ended Nov 30) | 2023 (in millions) | 2022 (in millions) | | :-------------------------------------------- | :----------------- | :----------------- | | Cost of product sold | $(12.2) | $(25.2) | | Selling, general, and administrative expenses | $(10.7) | $2.2 | | Operating income (loss) | $(22.9) | $(23.0) | | Income (loss) from unconsolidated investments | $(61.0) | $(31.5) | | Comparable Adjustment (9 Months Ended Nov 30) | 2023 (in millions) | 2022 (in millions) | | :-------------------------------------------- | :----------------- | :----------------- | | Cost of product sold | $(23.1) | $(47.2) | | Selling, general, and administrative expenses | $(51.4) | $(21.5) | | Operating income (loss) | $(74.5) | $(68.7) | | Income (loss) from unconsolidated investments | $(452.8) | $(1,852.4) | Business Segments Operating results for the company's business segments show continued growth in net sales and operating income for the Beer segment, while the Wine & Spirits segment faced challenges with declines in both net sales and operating income Third Quarter 2024 compared to Third Quarter 2023 In the third quarter of fiscal year 2024, consolidated net sales grew 1% to $2.4709 billion, and operating income grew 7% to $796.9 million, with Beer net sales increasing 4% due to shipment growth and pricing, while Wine & Spirits net sales decreased 8% due to lower organic brand shipments | Metric (3 Months Ended Nov 30) | 2023 (in millions) | 2022 (in millions) | Dollar Change | Percent Change | | :----------------------------- | :----------------- | :----------------- | :------------ | :------------- | | Consolidated Net Sales | $2,470.9 | $2,436.5 | $34.4 | 1% | | Beer Net Sales | $1,968.5 | $1,891.9 | $76.6 | 4% | | Wine and Spirits Net Sales | $502.4 | $544.6 | $(42.2) | (8%) | | Consolidated Operating Income | $796.9 | $746.7 | $50.2 | 7% | | Beer Operating Income | $757.3 | $710.0 | $47.3 | 7% | | Wine and Spirits Operating Income | $127.6 | $134.8 | $(7.2) | (5%) | - Beer net sales increased by 4%, primarily driven by a $67.6 million increase in Mexican beer portfolio shipments and a $22.6 million favorable impact from pricing[162] - Wine & Spirits net sales decreased by 8%, primarily due to a $38.5 million reduction in organic net sales, including a $56.2 million decline in branded wine and spirits shipments[163] Nine Months 2024 compared to Nine Months 2023 For the nine months of fiscal year 2024, consolidated net sales grew 5% to $7.8226 billion, and operating income grew 7% to $2.5403 billion, with Beer net sales increasing 9% due to shipment growth and pricing, while Wine & Spirits net sales decreased 11% due to lower branded shipments and wine business divestitures | Metric (9 Months Ended Nov 30) | 2023 (in millions) | 2022 (in millions) | Dollar Change | Percent Change | | :----------------------------- | :----------------- | :----------------- | :------------ | :------------- | | Consolidated Net Sales | $7,822.6 | $7,454.8 | $367.8 | 5% | | Beer Net Sales | $6,459.8 | $5,929.4 | $530.4 | 9% | | Wine and Spirits Net Sales | $1,362.8 | $1,525.4 | $(162.6) | (11%) | | Consolidated Operating Income | $2,540.3 | $2,376.2 | $164.1 | 7% | | Beer Operating Income | $2,509.0 | $2,338.4 | $170.6 | 7% | | Wine and Spirits Operating Income | $287.6 | $325.2 | $(37.6) | (12%) | - Beer net sales increased by 9%, primarily driven by a $400.9 million increase in Mexican beer portfolio shipments and a $139.9 million favorable impact from pricing[181] - Wine & Spirits net sales decreased by 11%, primarily due to a $124.1 million reduction in organic net sales and a $38.5 million impact from wine business divestitures, including a $165.9 million decline in branded wine and spirits shipments[182] Liquidity and Capital Resources The company maintains strong liquidity primarily through operating cash flow and its commercial paper program to support working capital, capital expenditures, and debt repayment, with total debt decreasing by $762.8 million to $11.6985 billion as of November 30, 2023 General The company's primary source of liquidity is strong cash flow from operating activities, utilized for investments, capital expenditures, dividends, and share repurchases, and it also offers a supply chain finance program to suppliers - Cash flow from operating activities is the primary source of liquidity, used for investments, capital expenditures, dividends, and share repurchases[204] - The company offers a voluntary supply chain finance program to certain suppliers, with $5.6 million payable to participating financial institutions as of November 30, 2023[206] Cash Flows For the nine months ended November 30, 2023, net cash provided by operating activities increased by $66.2 million to $2.3468 billion, while net cash used in investing activities increased by $283.3 million to $929.9 million, primarily due to increased capital expenditures for Mexican beer projects | Cash Flow Activity | 9 Months Ended Nov 30, 2023 (in millions) | 9 Months Ended Nov 30, 2022 (in millions) | Change (in millions) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | | Net cash provided by operating activities | $2,346.8 | $2,280.6 | +$66.2 | | Net cash used in investing activities | $(929.9) | $(646.6) | $(283.3) | | Net cash provided by (used in) financing activities | $(1,472.4) | $(1,645.9) | +$173.5 | - Net cash used in investing activities increased, primarily due to $228.1 million in additional capital expenditures for Mexican beer projects and a $91.3 million decrease in proceeds from business divestitures[210] Debt Total outstanding debt decreased by $762.8 million to $11.6985 billion as of November 30, 2023, and the company maintains a $2.25 billion commercial paper program supported by its revolving credit facility, with $1.779 billion in remaining borrowing capacity as of November 30, 2023 | Metric | Nov 30, 2023 (in millions) | Feb 28, 2023 (in millions) | Change (in millions) | | :----------------------------- | :------------------------- | :------------------------- | :------------------- | | Total Debt Outstanding | $11,698.5 | $12,461.3 | $(762.8) | | Revolving credit facility (remaining capacity) | $1,779.0 | N/A | N/A | - As of November 30, 2023, the company was in compliance with all debt covenants under its 2022 Credit Agreement and indentures[222] Common Stock Dividends The Board of Directors declared a quarterly cash dividend of $0.89 per share for Class A common stock and $0.80 per share for Class 1 common stock, payable on February 22, 2024 | Stock Class | Quarterly Cash Dividend per Share | Payable Date | Record Date | | :---------- | :-------------------------------- | :----------- | :---------- | | Class A | $0.89 | Feb 22, 2024 | Feb 8, 2024 | | Class 1 | $0.80 | Feb 22, 2024 | Feb 8, 2024 | Share Repurchase Program The company currently has two active share repurchase authorizations: a $2.0 billion program from 2021 and an additional $2.0 billion program authorized in November 2023, with $1.3863 billion repurchased under the 2021 authorization as of November 30, 2023 | Authorization | Total Authorized (in millions) | Dollar Value Repurchased (Nov 30, 2023, in millions) | Number of Shares Repurchased (Nov 30, 2023) | | :---------------- | :----------------------------- | :--------------------------------------------------- | :------------------------------------------ | | 2021 Authorization | $2,000.0 | $1,386.3 | 5,875,276 | | 2023 Authorization | $2,000.0 | $— | — | Accounting Guidance New accounting guidance adopted during the nine months of fiscal year 2024 did not have a material impact on the company's financial statements - New accounting guidance adopted during the nine months of fiscal year 2024 did not have a material impact on the financial statements[229] Information Regarding Forward-Looking Statements This section emphasizes that Form 10-Q contains forward-looking statements subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations, including risks related to business strategy, beer expansion, ESG, economic conditions, supply chain, and Canopy investment - Forward-looking statements are subject to risks and uncertainties, including those related to business strategy, growth initiatives, capital expenditures, effective tax rate, and the potential sale of remaining assets of the Mexicali brewery[231] - Risks also include difficulties in the supply of water, agricultural and other raw materials, and packaging materials, inflationary pressures, global supply chain disruptions, and the impact of military conflicts and geopolitical tensions[233] - Specific risks related to the Canopy investment include potential future impairments, the completion and impact of the Canopy transaction, and the effect of common shares converting to Exchangeable Shares[232][235] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in an ongoing appeal of a trademark lawsuit filed by Cervecería Modelo de México concerning the use of Corona and Modelo brand names on hard seltzer and ranch water products, where an unfavorable resolution could adversely impact the company's business despite a jury ruling in its favor - Cervecería Modelo de México filed a lawsuit alleging improper use of the Corona and Modelo brand names on hard seltzer and ranch water products[251] - In March 2023, a jury unanimously ruled in favor of the company, but the plaintiff appealed to the U.S. Court of Appeals for the Second Circuit in May 2023, with the appeal currently pending[251][252] - An unfavorable resolution could prevent the company from selling Corona Hard Seltzer and Modelo Ranch Water products under their current brand names and may require payment of damages, adversely impacting the business, liquidity, financial condition, and/or results of operations[253][254] Item 1A. Risk Factors This section supplements the risk factors disclosed in the 2023 Annual Report, emphasizing strategic risks related to trademark and proprietary rights reliance, particularly the ongoing legal challenge to the company's right to use the Corona and Modelo brand names on certain products - Risk factors have not materially changed from the 2023 Annual Report but are updated with strategic risks related to intellectual property protection[249] - The ongoing appeal of the Cervecería Modelo de México trademark lawsuit poses a risk, where an unfavorable outcome could impact the company's ability to sell Corona Hard Seltzer and Modelo Ranch Water products under their current brand names and potentially lead to damages[253][254] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 889,429 shares of Class A common stock at an average price of $241.42 per share in November 2023 under the 2021 authorization, with $2.6137 billion remaining for repurchase under the 2021 and 2023 authorizations as of November 30, 2023 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions) | | :--------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------------------- | | November 1 – 30, 2023 | 889,429 | $241.42 | $2,613.7 | - Repurchases were made under the 2021 authorization, and no stock repurchases had been made under the 2023 authorization as of November 30, 2023[258] Item 5. Other Information During the three months ended November 30, 2023, no directors or officers adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[257] Item 6. Exhibits This section lists all exhibits filed with Form 10-Q, including various agreements, articles of incorporation, bylaws, senior note indentures, credit agreements, and XBRL documents - Exhibits include key corporate documents such as amended articles of incorporation and bylaws, various supplemental indentures for senior notes, and the 2022 Credit Agreement[261][264] SIGNATURES