Constellation Brands, Inc 10-Q for FY2024 Q1

Constellation Brands, Inc. (STZ)

10-Q 2023-06-30 For: 2023-05-31

Added on April 08, 2026

About this 10-Q

Constellation Brands, Inc filed this 10-Q on June 30, 2023, covering the quarter ended May 31, 2023 (FY2024 Q1).

Headline figures

Quarter ended May 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.51B; up 6.4% from $2.36B a year earlier
Net income: $135.9M; down 65.1% from net income of $389.5M a year earlier

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Delaware			16-0716709
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A Common Stock	STZ	New York Stock Exchange


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


		Page

DEFINED TERMS		i

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets		1
Consolidated Statements of Comprehensive Income (Loss)		2
Consolidated Statements of Changes in Stockholders’ Equity		3
Consolidated Statements of Cash Flows		4
Notes to Consolidated Financial Statements
	1. Basis of Presentation	6
	2. Inventories	6


	3. Derivative Instruments	6
	4. Fair Value of Financial Instruments	8
	5. Goodwill	11
	6. Intangible Assets	12
	7. Equity Method Investments	12


	8. Borrowings	14
	9. Income Taxes	16


	10. Stockholders' Equity	16
	11. Net Income (Loss) Per Common Share Attributable to CBI	17
	12. Comprehensive Income (Loss) Attributable to CBI	18
	13. Business Segment Information	20


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures About Market Risk		41
Item 4. Controls and Procedures		42

PART II – OTHER INFORMATION
Item 1. Legal Proceedings		43
Item 1A. Risk Factors		43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44

Item 6. Exhibits		45

SIGNATURES		49


Term						Meaning

$						U.S. dollars
3.20% February 2018 Senior Notes						$600.0 million principal amount of 3.20% senior notes issued in February 2018, partially tendered in May 2022, and fully redeemed in June 2022, prior to maturity
4.25% May 2013 Senior Notes						$1,050.0 million principal amount of 4.25% senior notes issued in May 2013, partially tendered in May 2022, and fully redeemed in June 2022, prior to maturity

2021 Authorization						authority to repurchase up to $2.0 billion of our publicly traded common stock, authorized in January 2021 by our Board of Directors

2022 Credit Agreement						tenth amended and restated credit agreement, dated as of April 14, 2022, that provides for an aggregate revolving credit facility of $2.25 billion

2023 Annual Report						our Annual Report on Form 10-K for the fiscal year ended February 28, 2023

2023 Canopy Promissory Note						C$100.0 million principal amount of 4.25% promissory note issued to us by Canopy in April 2023
3-tier						distribution channel where products are sold to a distributor (wholesaler) who then sells to a retailer; the retailer sells the products to a consumer
3-tier eCommerce						digital commerce experience for consumers to purchase beverage alcohol from retailers
ABA						alternative beverage alcohol
Administrative Agent						Bank of America, N.A., as administrative agent for the senior credit facility and term loan credit agreements

Amended and Restated By-Laws						our amended and restated by-laws which became effective at the Effective Time
Amended and Restated Charter						our amended and restated certificate of incorporation which effectuated the Reclassification at the Effective Time
AOCI						accumulated other comprehensive income (loss)
April 2022 Term Credit Agreement						amended and restated term loan credit agreement, dated as of March 26, 2020, that provided for aggregate facilities of $491.3 million, consisting of the Five-Year Term Facility, inclusive of amendments dated as of June 10, 2021, and April 14, 2022

August 2022 Term Credit Agreement						term loan credit agreement, dated as of August 9, 2022, that provided for a $1.0 billion unsecured delayed draw three-year term loan facility
Austin Cocktails						we made an initial investment in the Austin Cocktails business and subsequently acquired the remaining ownership interest
BioSteel						BioSteel Sports Nutrition Inc., a subsidiary of Canopy

C$						Canadian dollars
Canopy						we made an investment in Canopy Growth Corporation, an Ontario, Canada-based public company
Canopy Amendment						a proposed resolution authorizing amending Canopy’s share capital to create Exchangeable Shares and providing for the conversion of Canopy common shares into Exchangeable Shares on a one-for-one basis at any time and at the option of the holder of such shares
Canopy Debt Securities						debt securities issued by Canopy in June 2018
Canopy Equity Method Investment						an investment in Canopy common shares
Canopy Strategic Transaction(s)						any potential acquisition, divestiture, investment, or other similar transaction made by Canopy, including but not limited to the Canopy Transaction
Canopy Transaction						proposed corporate transaction by Canopy, including the creation of Exchangeable Shares, designed to consolidate its U.S. cannabis assets into Canopy USA
Canopy USA						a new U.S. holding company formed by Canopy


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I i


Term						Meaning

CB International						CB International Finance S.à r.l., a wholly-owned subsidiary of ours
Class 1 Stock						our Class 1 Convertible Common Stock, par value $0.01 per share
Class A Stock						our Class A Common Stock, par value $0.01 per share
Class B Stock						our Class B Convertible Common Stock, par value $0.01 per share, eliminated on November 10, 2022, pursuant to the Reclassification
CODM						chief operating decision maker
Comparable Adjustments						certain items affecting comparability that have been excluded by management
Consent Agreement						an agreement between Canopy and (i) Greenstar Canada Investment Limited Partnership and (ii) CBG Holdings LLC, our indirect, wholly-owned subsidiaries
CPG						consumer packaged goods
Craft Beer Divestitures						the Four Corners Divestiture and the Funky Buddha Divestiture, collectively
Daleville Facility						production facility located in Roanoke, Virginia
Depletions						represent U.S. domestic distributor shipments of our respective branded products to retail customers, based on third-party data
Digital Business Acceleration						a phased initiative by the Company to create a cohesive digital strategy and build an advanced digital business in the coming years
DTC						direct-to-consumer inclusive of (i) a digital commerce experience for consumers to purchase directly from brand websites with inventory coming straight from the supplier and (ii) consumer purchases at hospitality locations (tasting rooms and tap rooms) from the supplier
Effective Time						the time that the Amended and Restated Charter was duly filed with the Secretary of State of the State of Delaware on November 10, 2022
ESG						environmental, social, and governance
Exchangeable Shares						proposed new class of non-voting and non-participating exchangeable shares in Canopy which will be convertible into common shares of Canopy
Exchange Act						Securities Exchange Act of 1934, as amended
Financial Statements						our consolidated financial statements and notes thereto included herein
First Quarter 2023						the Company’s three months ended May 31, 2022
First Quarter 2024						the Company’s three months ended May 31, 2023
Fiscal 2023						the Company’s fiscal year ended February 28, 2023
Fiscal 2024						the Company’s fiscal year ending February 29, 2024
Fiscal 2025						the Company’s fiscal year ending February 28, 2025
Fiscal 2026						the Company’s fiscal year ending February 28, 2026
Fiscal 2027						the Company’s fiscal year ending February 28, 2027
Fiscal 2028						the Company’s fiscal year ending February 29, 2028
Fiscal 2029						the Company’s fiscal year ending February 28, 2029
Five-Year Term Facility						a five-year term loan facility under the April 2022 Term Credit Agreement
Form 10-Q						this Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2023, unless otherwise specified
Four Corners Divestiture						sale of the Four Corners Brewing Company LLC business
Funky Buddha Divestiture						sale of the Funky Buddha Brewery LLC business
GHG						greenhouse gas
IRA						Inflation Reduction Act of 2022, signed into law in the U.S. on August 16, 2022
IT						information technology
Lender						Bank of America, N.A., as lender for the April 2022 Term Credit Agreement
Lingua Franca						Lingua Franca, LLC business, acquired by us
May 2023 Senior Notes						$750.0 million aggregate principal amount of senior notes issued in May 2023


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I ii


Term						Meaning

MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part I – Item 2. of this Form 10-Q
Mexicali Brewery						canceled brewery construction project located in Mexicali, Baja California, Mexico
Mexico Beer Projects						expansion, optimization, and/or construction activities at the Obregon Brewery, Nava Brewery, and Veracruz Brewery
M&T						Manufacturers and Traders Trust Company
NA						not applicable

Nava						Nava, Coahuila, Mexico
Nava Brewery						brewery located in Nava
Net sales						gross sales less promotions, returns and allowances, and excise taxes


NM						not meaningful
Note(s)						notes to the consolidated financial statements

November 2018 Canopy Warrants						warrants acquired in November 2018 which give us the option to purchase common shares of Canopy
Obregon						Obregon, Sonora, Mexico
Obregon Brewery						brewery located in Obregon
OCI						other comprehensive income (loss)
October 2022 Credit Agreement Amendments						amendments dated as of October 18, 2022, to the 2022 Credit Agreement, the April 2022 Term Credit Agreement, and the August 2022 Term Credit Agreement
Pre-issuance hedge contracts						treasury lock and/or swap lock contracts designated as cash flow hedges entered into to hedge treasury rate volatility on future debt issuances
Reclassification						the reclassification, exchange, and conversion of the Company’s common stock to eliminate the Class B Stock pursuant to the terms and conditions of the Reclassification Agreement
Reclassification Agreement						reclassification agreement in support of the Reclassification, dated June 30, 2022, among the Company and the Sands Family Stockholders
RTD						ready-to-drink
SEC						Securities and Exchange Commission
Sands Family Stockholders						RES Master LLC, RES Business Holdings LP, SER Business Holdings LP, RHT 2015 Business Holdings LP, RSS Master LLC, RSS Business Holdings LP, SSR Business Holdings LP, RSS 2015 Business Holdings LP, RCT 2015 Business Holdings LP, RCT 2020 Investments LLC, NSDT 2009 STZ LLC, NSDT 2011 STZ LLC, RSS Business Management LLC, SSR Business Management LLC, LES Lauren Holdings LLC, MES Mackenzie Holdings LLC, Abigail Bennett, Zachary Stern, A&Z 2015 Business Holdings LP (subsequently liquidated), Marilyn Sands Master Trust, MAS Business Holdings LP, Sands Family Foundation, Richard Sands, Robert Sands, WildStar Partners LLC, Astra Legacy LLC, AJB Business Holdings LP, and ZMSS Business Holdings LP
Securities Act						Securities Act of 1933, as amended
SOFR						secured overnight financing rate administered by the Federal Reserve Bank of New York





TRUE Zero Waste to Landfill Certification						the first zero waste certification program dedicated to measuring, improving, and recognizing zero waste performance by encouraging the adoption of sustainable materials management and reduction practices which contribute to positive environmental, health, and economic outcomes
U.S.						United States of America
Veracruz						Heroica Veracruz, Veracruz, Mexico
Veracruz Brewery						a new brewery being constructed in Veracruz
Wine Divestiture						sale of certain mainstream and premium wine brands and related inventory


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I iii


	May 31, 2023		February 28, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	192.5	$	133.5
Accounts receivable	933.1		901.6
Inventories	1,951.4		1,898.7
Prepaid expenses and other	575.6		562.3

Total current assets	3,652.6		3,496.1
Property, plant, and equipment	7,190.1		6,865.2
Goodwill	7,953.9		7,925.4
Intangible assets	2,727.4		2,728.1
Equity method investments	291.3		663.3

Deferred income taxes	2,160.5		2,193.3

Other assets	783.4		790.9
Total assets	$	24,759.2	$	24,662.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	819.1	$	1,165.3
Current maturities of long-term debt	558.1		9.5
Accounts payable	1,003.3		941.5
Other accrued expenses and liabilities	810.0		852.0
Total current liabilities	3,190.5		2,968.3
Long-term debt, less current maturities	10,979.8		11,286.5

Deferred income taxes and other liabilities	1,680.7		1,673.6
Total liabilities	15,851.0		15,928.4
Commitments and contingencies
CBI stockholders’ equity:
Class A Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 212,697,508 shares and 212,697,428 shares, respectively	2.1		2.1
Additional paid-in capital	1,918.1		1,903.0
Retained earnings	12,316.7		12,343.9
Accumulated other comprehensive income (loss)	242.9		28.5
	14,479.8		14,277.5
Less: Treasury stock –
Class A Stock, at cost, 29,438,466 shares and 29,498,426 shares, respectively	(5,894.8)		(5,863.9)
Total CBI stockholders’ equity	8,585.0		8,413.6
Noncontrolling interests	323.2		320.3
Total stockholders’ equity	8,908.2		8,733.9
Total liabilities and stockholders’ equity	$	24,759.2	$	24,662.3


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 1


	For the Three Months Ended May 31,
	2023		2022
Sales	$	2,699.5	$	2,540.7
Excise taxes	(184.6)		(177.5)
Net sales	2,514.9		2,363.2
Cost of product sold	(1,257.1)		(1,108.2)
Gross profit	1,257.8		1,255.0
Selling, general, and administrative expenses	(493.1)		(438.6)



Operating income (loss)	764.7		816.4
Income (loss) from unconsolidated investments	(415.4)		(187.9)
Interest expense	(118.2)		(88.5)
Loss on extinguishment of debt	(0.7)		(15.3)
Income (loss) before income taxes	230.4		524.7
(Provision for) benefit from income taxes	(91.2)		(125.4)
Net income (loss)	139.2		399.3
Net (income) loss attributable to noncontrolling interests	(3.3)		(9.8)
Net income (loss) attributable to CBI	$	135.9	$	389.5

Comprehensive income (loss)	$	364.5	$	658.3
Comprehensive (income) loss attributable to noncontrolling interests	(14.2)		(22.4)
Comprehensive income (loss) attributable to CBI	$	350.3	$	635.9

Net income (loss) per common share attributable to CBI:
Basic – Class A Stock	$	0.74	$	2.09
Basic – Class B Stock	NA		$	1.89

Diluted – Class A Stock	$	0.74	$	2.06
Diluted – Class B Stock	NA		$	1.89

Weighted average common shares outstanding:
Basic – Class A Stock	183.270		165.335
Basic – Class B Stock	NA		23.206

Diluted – Class A Stock	183.863		189.333
Diluted – Class B Stock	NA		23.206

Cash dividends declared per common share:
Class A Stock	$	0.89	$	0.80
Class B Stock	NA		$	0.72


FINANCIAL STATEMENTS			Table of Contents


FINANCIAL STATEMENTS			Table of Contents


FINANCIAL STATEMENTS			Table of Contents


CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited)
	Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-controlling Interests		Total
	Class A		Class B
Balance at February 28, 2023	$	2.1	$	—	$	1,903.0	$	12,343.9	$	28.5	$	(5,863.9)	$	320.3	$	8,733.9

Comprehensive income (loss):
Net income (loss)	—		—		—		135.9		—		—		3.3		139.2
Other comprehensive income (loss), net of income tax effect	—		—		—		—		214.4		—		10.9		225.3
Comprehensive income (loss)															364.5
Repurchase of shares	—		—		—		—		—		(35.0)		—		(35.0)
Dividends declared	—		—		—		(163.1)		—		—		—		(163.1)
Noncontrolling interest distributions	—		—		—		—		—		—		(11.3)		(11.3)
Shares issued under equity compensation plans	—		—		0.6		—		—		4.1		—		4.7
Stock-based compensation	—		—		14.5		—		—		—		—		14.5
Balance at May 31, 2023	$	2.1	$	—	$	1,918.1	$	12,316.7	$	242.9	$	(5,894.8)	$	323.2	$	8,908.2


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 2


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 3


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 4


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 5


	May 31, 2023		February 28, 2023
(in millions)
Raw materials and supplies	$	239.1	$	245.5
In-process inventories	956.3		967.8
Finished case goods	756.0		685.4
	$	1,951.4	$	1,898.7


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 6


Assets					Liabilities
	May 31, 2023		February 28, 2023			May 31, 2023		February 28, 2023
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	134.6	$	109.1	Other accrued expenses and liabilities	$	9.3	$	9.8
Other assets	$	163.7	$	134.5	Deferred income taxes and other liabilities	$	3.4	$	3.5









Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	4.3	$	5.9	Other accrued expenses and liabilities	$	2.9	$	3.9
Commodity derivative contracts:
Prepaid expenses and other	$	8.7	$	21.2	Other accrued expenses and liabilities	$	32.0	$	19.5
Other assets	$	1.5	$	4.6	Deferred income taxes and other liabilities	$	13.5	$	8.3


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 7


Derivative Instruments in Designated Cash Flow Hedging Relationships	Net Gain (Loss) Recognized in OCI		Location of Net Gain (Loss) Reclassified from AOCI to Income (Loss)	Net Gain (Loss) Reclassified from AOCI to Income (Loss)
(in millions)
For the Three Months Ended May 31, 2023
Foreign currency contracts	$	79.3	Sales	$	—
			Cost of product sold	26.4


Pre-issuance hedge contracts	0.6		Interest expense	(0.2)
	$	79.9		$	26.2

For the Three Months Ended May 31, 2022
Foreign currency contracts	$	79.5	Sales	$	(0.6)
			Cost of product sold	11.1

Pre-issuance hedge contracts	15.7		Interest expense	(0.5)
	$	95.2		$	10.0


Derivative Instruments Not Designated as Hedging Instruments	Location of Net Gain (Loss) Recognized in Income (Loss)	Net Gain (Loss) Recognized in Income (Loss)
(in millions)
For the Three Months Ended May 31, 2023
Commodity derivative contracts	Cost of product sold	$	(34.7)
Foreign currency contracts	Selling, general, and administrative expenses	12.7

		$	(22.0)

For the Three Months Ended May 31, 2022
Commodity derivative contracts	Cost of product sold	$	48.5
Foreign currency contracts	Selling, general, and administrative expenses	6.2

		$	54.7


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 8


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	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(in millions)
May 31, 2023
Assets:
Foreign currency contracts	$	—	$	302.6	$	—	$	302.6
Commodity derivative contracts	$	—	$	10.2	$	—	$	10.2




Liabilities:
Foreign currency contracts	$	—	$	15.6	$	—	$	15.6
Commodity derivative contracts	$	—	$	45.5	$	—	$	45.5




February 28, 2023
Assets:
Foreign currency contracts	$	—	$	249.5	$	—	$	249.5
Commodity derivative contracts	$	—	$	25.8	$	—	$	25.8
November 2018 Canopy Warrants	$	—	$	0.2	$	—	$	0.2
Canopy Debt Securities	$	—	$	69.6	$	—	$	69.6
Liabilities:
Foreign currency contracts	$	—	$	17.2	$	—	$	17.2
Commodity derivative contracts	$	—	$	27.8	$	—	$	27.8


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 10


	Beer		Wine and Spirits		Consolidated
(in millions)
Balance, February 28, 2022	$	5,120.7	$	2,741.7	$	7,862.4
Purchase accounting allocations (1)	—		26.3		26.3
Wine Divestiture	—		(24.5)		(24.5)
Foreign currency translation adjustments	68.2		(7.0)		61.2

Balance, February 28, 2023	5,188.9		2,736.5		7,925.4


Foreign currency translation adjustments	30.1		(1.6)		28.5


Balance, May 31, 2023	$	5,219.0	$	2,734.9	$	7,953.9


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 11


	May 31, 2023				February 28, 2023
	Gross Carrying Amount		Net Carrying Amount		Gross Carrying Amount		Net Carrying Amount
(in millions)
Amortizable intangible assets
Customer relationships	$	85.4	$	17.2	$	85.7	$	17.7
Other	20.4		—		20.8		—
Total	$	105.8	17.2		$	106.5	17.7

Nonamortizable intangible assets
Trademarks			2,710.2				2,710.4
Total intangible assets			$	2,727.4			$	2,728.1


	May 31, 2023				February 28, 2023
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
(in millions)
Canopy Equity Method Investment (1)	$	142.7	33.2	%	$	485.8	34.7	%
Other equity method investments	148.6		20%-50%		177.5		20%-50%
	$	291.3			$	663.3


Constellation Brands, Inc. Q1 FY 2024 Form 10-Q			#WORTHREACHINGFOR I 12


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