Constellation Brands Inc. (NYSE:STZ)

The financial data reveals significant fluctuations and some notable patterns in the company's performance over the six-year period.

Net operating profit after taxes (NOPAT)

The NOPAT demonstrated an increasing trend from 2017 to 2019, rising from approximately $1.89 billion to about $4.19 billion, indicating improving operational efficiency or profitability during this period. However, there was a sharp decline in 2020, with NOPAT turning negative at approximately -$0.78 billion, reflecting a considerable operational loss. The company partially recovered in 2021 with a positive NOPAT of roughly $2.69 billion but then again faced a reduced NOPAT of about $0.50 billion in 2022, suggesting volatility and challenges in maintaining consistent profitability.

Cost of capital

The cost of capital fluctuated moderately within a fairly narrow range, from around 11.84% to 13.53%. It decreased slightly in 2020, the year with the negative NOPAT, before rising again in subsequent years, reaching its highest level in 2022. The cost of capital's relative stability suggests consistent market or company risk perception but rising rates in later years might indicate increasing financing costs or risk premiums.

Invested capital

The invested capital showed a steady increase from 2017 through 2019, rising from about $17.41 billion to nearly $24.89 billion. This reflects growing investment in the business. However, after 2019, invested capital decreased, declining to approximately $20.49 billion by 2022. The reduction could imply asset disposals, write-downs, or strategic shifts in resource allocation during that period.

Economic profit

Economic profit was negative in 2017 and 2018, indicating that the returns did not cover the cost of capital during those years. In 2019, there was a positive economic profit of about $1.05 billion, pointing to value creation. However, this was followed by a substantial negative economic profit in 2020 of roughly -$3.36 billion, corresponding with the negative NOPAT and possibly reflecting severe operational or external challenges. Economic profit remained negative in 2021 and 2022, indicating ongoing struggles to generate returns above capital costs and thereby destroying shareholder value in those years.

In summary, the company experienced growth in profitability and invested capital through 2019 but faced significant operational and economic profit challenges starting in 2020. Despite some rebound in NOPAT in 2021, the continued negative economic profit and volatility in earnings signal persistent difficulties in achieving sustainable value generation above its cost of capital in the most recent years.

Net Income (Loss) Attributable to CBI

The net income attributable to the company showed a significant upward trend from 2017 to 2019, increasing from approximately 1.54 billion USD to nearly 3.44 billion USD. This represents a robust growth phase over these three years. However, there was a sharp reversal in 2020, with the company reporting a net loss of about 11.8 million USD. Following this loss, the company returned to profitability in 2021 with nearly 2 billion USD in net income. Yet in 2022, the net income again declined into negative territory, recording a loss of approximately 40.4 million USD. Overall, the data reflects considerable volatility in net income performance, especially post-2019, indicating potential challenges during and after the 2020 period.

Net Operating Profit After Taxes (NOPAT)

The net operating profit after taxes demonstrated growth from 2017 through 2019, climbing from roughly 1.89 billion USD to over 4.18 billion USD, nearly doubling during this period. This aligns with the increase in net income, indicating strong operational profitability. However, in 2020, NOPAT sharply declined into a significant negative value of approximately 778 million USD, suggesting operational difficulties or extraordinary charges impacting earnings. A recovery occurred in 2021, with NOPAT rising to about 2.69 billion USD, though this was substantially below the 2019 peak. The 2022 figure decreased again to around 498 million USD, highlighting ongoing instability in operating performance after 2019.

Overall Financial Trends

Both net income and net operating profit after taxes exhibited strong growth trends over the initial three-year period, reflecting an expanding and profitable operational phase. The year 2020 marked a critical inflection point, with both metrics showing significant downturns, possibly linked to external disruptions or internal challenges. Although there was a partial rebound in 2021, the company did not regain the peak levels seen in 2019. The subsequent decline in 2022 suggests persistent difficulties in returning to prior performance levels. The volatility captured in these key profitability measures indicates that while the company experienced robust growth earlier, it faced substantial headwinds beginning in 2020, which have had a lasting impact on financial performance.

Income Tax Provision (Benefit)

The income tax provision fluctuates significantly over the periods analyzed. In the year ending February 28, 2017, the provision was substantially high at 554,200 thousand US dollars. This value sharply decreased to 11,900 thousand US dollars in the following year, indicating a substantial reduction in tax expense or a change in tax strategy. In the year ending February 28, 2019, the provision rose again markedly to 685,900 thousand US dollars, reflecting a possible increase in taxable income or changes in tax regulations.

Notably, in the year ending February 29, 2020, there is a negative provision of -966,600 thousand US dollars, suggesting a significant tax benefit or perhaps a reversal of previous tax liabilities. Following this, the provision returned to positive figures in the subsequent years, with 511,100 thousand US dollars in 2021 and a decline to 309,400 thousand US dollars in 2022. The fluctuation highlights varying tax impacts on earnings, potentially influenced by operational performance, tax planning, or extraordinary items during these periods.

Cash Operating Taxes

Cash operating taxes exhibit a general declining trend from 2017 through 2021. Starting at 547,177 thousand US dollars in the year ending February 28, 2017, the cash taxes increased slightly to 553,637 thousand US dollars in 2018, indicating stable or increased tax payments at a cash level. From 2019 onward, a steady decrease is observed with payments dropping to 339,562 thousand US dollars, then continuing to 281,244 thousand US dollars in 2020, and further down to 259,325 thousand US dollars in 2021, which may reflect decreased taxable income or improved tax efficiency.

In the year ending February 28, 2022, there is an increase in cash taxes paid to 302,832 thousand US dollars, suggesting a rebound or change in tax obligations compared to the previous declining trend. This may be indicative of increased earnings or alterations in tax policies impacting the cash tax outflows. Overall, cash operating taxes show more stability and less volatility compared to the income tax provision figures.

Total reported debt & leases

Over the six-year period, total reported debt and leases exhibited substantial fluctuations. From 2017 to 2019, there was a notable increase, rising from approximately 9.63 billion to 14.07 billion USD. This peak was followed by a reduction in 2020 to around 12.75 billion USD, then a further decline in the subsequent years, reaching approximately 10.95 billion USD by 2022. The initial growth phase indicates a possible expansion or increased leverage, while the later decrease may suggest debt repayments or restructuring efforts.

Total CBI stockholders’ equity

Stockholders’ equity demonstrated a generally upward trajectory from 2017 through 2021. Beginning at roughly 6.89 billion USD in 2017, equity increased steadily, reaching a peak of about 13.60 billion USD in 2021. However, in 2022, there was a decline to approximately 11.73 billion USD. This trend suggests an overall strengthening of the equity base over most of the period, with a partial reversal in the most recent year, which could reflect asset revaluations, dividend payments, or other equity-affecting transactions.

Invested capital

Invested capital rose significantly from 2017 to 2019, increasing from roughly 17.41 billion USD to 24.89 billion USD. Subsequently, there was a decline in 2020 to approximately 21.79 billion USD, followed by further decreases to about 21.24 billion USD in 2021 and 20.49 billion USD in 2022. This pattern indicates an initial phase of capital expansion, possibly linked to investments or acquisitions, followed by a contraction phase, which may reflect divestitures, asset impairments, or reduced capital expenditures.

The analysis of the annual financial data reveals several significant trends and fluctuations over the six-year period.

Economic Profit

The economic profit shows a highly volatile pattern. It begins with negative values in 2017 and 2018, indicating losses of approximately -$355 million and -$340 million, respectively. A significant positive turnaround occurs in 2019 with a profit of over $1 billion. However, this favorable trend is short-lived, as the company records a substantial loss again in 2020 amounting to approximately -$3.36 billion. The following years, 2021 and 2022, show continued negative economic profit, though the magnitudes are smaller compared to 2020, with losses around -$139 million and -$2.27 billion respectively. This volatility highlights challenges in maintaining consistent profitability over the period.

Invested Capital

Invested capital demonstrates a general upward trend from 2017 through 2019, rising from roughly $17.4 billion to almost $24.9 billion, suggesting increased investment in the company’s operations or assets. However, from 2020 onward, invested capital decreases steadily each year, falling to approximately $20.5 billion by 2022. This decline could indicate divestitures, asset sales, or other strategic adjustments reducing the base of capital employed.

Economic Spread Ratio

The economic spread ratio mirrors the fluctuations in economic profit, showing mostly negative values except for 2019. From -2.04% in 2017, it improves slightly in 2018 to -1.84%, before experiencing a positive peak at 4.22% in 2019. Subsequently, a drastic decline is noted in 2020, with a negative spread of -15.41%, reflecting considerable challenges in generating returns above the cost of capital. Though the ratio improves somewhat in 2021 to -0.65%, it deteriorates again in 2022 to -11.09%. These movements indicate unstable profitability relative to invested capital and cost of funds.

Overall, the data suggest periods of significant instability in both profitability and capital management. The notable positive economic profit and spread in 2019 stand out amidst a series of predominantly negative results, highlighting the potential for improved performance that was not sustained in subsequent years. The declining invested capital after 2019 further reflects strategic shifts or responses to operational or market challenges impacting the company’s financial structure.

The financial data reveals notable fluctuations in the economic profitability of the company over the examined six-year period. Despite a generally increasing trend in adjusted net sales, the economic profit and economic profit margin exhibit significant variability and periods of negative performance.

Adjusted Net Sales

The adjusted net sales show a steady upward trend from $7,331,500 thousand in February 2017 to $8,939,000 thousand in February 2022. This represents a growth of approximately 21.9% over the six years, indicating consistent revenue growth each year without any decline or stagnation.

Economic Profit

The economic profit fluctuates considerably throughout the years. After recording negative values in 2017 and 2018 (-$354,832 thousand and -$340,495 thousand, respectively), a significant positive spike occurs in 2019 with $1,051,238 thousand. However, this is followed by a sharp drop to a substantial loss of -$3,358,131 thousand in 2020. Modest negative values are then observed in 2021 (-$138,964 thousand) and a further larger negative in 2022 (-$2,273,223 thousand). These swings indicate volatility in profitability, with large swings possibly due to extraordinary items or operational disruptions.

Economic Profit Margin

The economic profit margin mirrors the trends seen in economic profit but presented as a percentage of sales. It starts with negative margins of -4.84% and -4.49% in 2017 and 2018, reflecting losses relative to sales. In 2019, there is a marked improvement with a positive margin of 12.95%, highlighting a year of efficient economic profitability. This is followed by a drastic decline to -40.25% in 2020, indicating severe loss relative to sales, which aligns with the sharp drop in economic profit. The margin slightly recovers but remains negative at -1.61% in 2021 and declines again to -25.43% in 2022.

Overall, the company demonstrates consistent growth in sales revenue; however, the economic profit and its margin are highly volatile. The positive peak in 2019 suggests effective profitability management in that year, but the subsequent years show challenges in sustaining economic profits despite growing sales. This pattern may indicate increased costs, investments, or external factors impacting profitability metrics more than revenue generation capabilities.