Constellation Brands Inc. (NYSE:STZ)

The analysis of the financial ratios over the given periods reveals several notable trends regarding the operational efficiency and liquidity management.

Inventory Turnover

The inventory turnover ratio exhibited an overall upward trend from approximately 1.94 in mid-2017 to a peak around 3.21 in early 2021, indicating improved efficiency in managing inventory. However, this ratio showed a slight decline thereafter, stabilizing around 2.56 towards late 2022. This suggests fluctuations in inventory management effectiveness but generally better performance compared to the earlier periods.

Receivables Turnover

Receivables turnover fluctuated across the examined timeframe, ranging mostly between 8 and 11.72. Although there were periods of decline, such as in late 2018 and mid-2020, overall, the turnover maintained a relatively stable level indicating consistent effectiveness in collecting receivables. The highest point reached close to 11.72, corresponded with shorter collection periods.

Payables Turnover

The payables turnover ratio experienced significant variation, with values oscillating from lows near 4.3 to highs above 9. Notably, a sharp increase occurred in early 2021 with a peak close to 9.02, followed by a gradual decrease stabilizing around 4.5 to 5.0. This variability reflects changes in payment strategies and supplier negotiations over time.

Working Capital Turnover

This ratio showed high volatility, especially in 2018 and 2021, where some extraordinary spikes occurred (e.g., around 29.39 and 13.98), implying unusual gains or changes in working capital management. Generally, aside from these spikes, the ratio fluctuated between 4.7 and 12, suggesting inconsistent working capital utilization efficiency throughout the periods.

Average Inventory Processing Period

The number of days inventory was held generally trended downwards from about 188 days in mid-2017 to near 114 days by early 2021, indicating faster inventory turnover. Post-2021, the period lengthened again, reaching beyond 140 days, which may signal slower inventory movement or stock accumulation.

Average Receivable Collection Period

The collection period remained relatively stable, mostly within the range of 31 to 44 days, with mild fluctuations and no significant long-term trend. The shortest periods occurred around mid-2020, denoting improved collection efficiency during that time.

Operating Cycle

The operating cycle length decreased substantially from over 230 days in 2017 to approximately 147 days by early 2021, showing an improvement in overall operational efficiency. Afterward, the operating cycle slightly increased but remained below earlier levels, indicating sustained better performance compared to the start of the period.

Average Payables Payment Period

The payment period demonstrated variability, with values starting around 54 days, peaking near 84 days in early 2022, and reaching lows as short as 40 days in early 2021. The general trend suggests occasional extensions in payment terms, which may be a strategy to optimize cash flow.

Cash Conversion Cycle

The cash conversion cycle reduced from around 175 days in 2017 to lows near 84 days by late 2021, signaling improved liquidity management and quicker cash recovery from operations. Though some slight increases occurred toward the end of the data series, the cycle remained substantially shorter than at the beginning of the period.

The data reveals several notable trends in the company's cost of product sold, inventories, and inventory turnover over multiple quarters from May 2017 through November 2022.

Cost of Product Sold

The cost of product sold exhibits fluctuations throughout the periods monitored. Initial values are around 940 million USD in mid-2017, rising to a peak exceeding 1.1 billion USD in late 2018 and mid-2019. Subsequently, the costs display variability but generally remain near or above the 1 billion USD level. The most recent quarter in November 2022 records approximately 1.21 billion USD, indicating an upward trend compared to the earliest quarters.

Inventories

Inventories start at approximately 1.94 billion USD and experience moderate fluctuations. Early periods show values oscillating around 1.9 to 2.2 billion USD, with a notable decline to below 1.5 billion in mid to late 2019. From 2020 onward, inventories gradually increase, surpassing 1.8 billion USD by late 2022. This suggests a build-up of stock over recent years, possibly reflecting strategic inventory management or changes in supply chain dynamics.

Inventory Turnover

Inventory turnover ratios begin near 1.9 and show a declining trend into the range of about 1.7 to 1.8 in late 2017 to early 2018. However, from 2019 onward, there is a significant improvement, with turnover exceeding 3 times in several quarters, peaking around 3.21 in early 2021. After this peak, turnover declines somewhat but remains above 2.5 in the most recent periods. This trend indicates enhanced efficiency in inventory management starting around 2019, followed by a slight reduction but still maintaining higher turnover compared to the baseline years.

Overall, the data indicates that while the company’s cost of product sold has increased over time, the firm has managed to improve inventory turnover efficiency, especially from 2019 onwards, despite fluctuations. Inventories themselves have experienced a period of reduction followed by growth, aligning with changes in turnover and cost trends, possibly reflecting adjustments in operational strategy or market conditions.

The analysis of the financial data over the presented periods reveals several key trends and patterns related to net sales, accounts receivable, and receivables turnover ratio.

Net Sales

Net sales have exhibited cyclical fluctuations within each fiscal year, with a recurring pattern of higher sales typically observed in the quarters ending in August and November, followed by a decline in February quarters. Over the multi-year span, there is a general upward trend in net sales, increasing from approximately 1.94 billion USD in May 2017 to peaks exceeding 2.65 billion USD by August 2022. Despite this overall growth, some quarters experienced intermittent declines, such as the February 2020 and May 2021 periods, which may indicate seasonal or market-specific factors affecting sales volumes.

Accounts Receivable

Accounts receivable values have followed a broadly similar fluctuating pattern to net sales but with less pronounced seasonality. The figures oscillate between roughly 700 million USD and nearly 1 billion USD across the periods. Notably, there appears to be an increase in accounts receivable towards the latter periods, particularly from mid-2020 onwards, which could suggest extended credit terms or slower collection cycles in certain quarters. The data indicates occasional decreases in accounts receivable despite rising sales, pointing to potentially more efficient collection management during those periods.

Receivables Turnover Ratio

The receivables turnover ratio, representing the efficiency of accounts receivable collection, shows moderate volatility but generally maintains levels between approximately 8.3 and 11.7 times per period. Higher turnovers tend to occur in quarters where accounts receivable are lower relative to sales. Peaks in turnover ratio are evident around May 2020, suggesting enhanced collection efficiency. Conversely, some quarters, such as August 2018 and August 2020, show a dip in turnover ratio, reflecting slower receivables collection or increased credit extension. Overall, the receivables turnover ratio does not exhibit a clear upward or downward trend but fluctuates in response to operational and market conditions.

In summary, net sales demonstrate a generally positive growth trend with expected seasonal variability. Accounts receivable also rise moderately over time but with less seasonal consistency. The receivables turnover ratio suggests varying efficiency in collections, without a sustained trend towards improvement or deterioration. Monitoring the alignment between sales growth and receivables management remains essential to maintaining healthy liquidity and operational efficiency.

Cost of Product Sold

The cost of product sold exhibits fluctuations over the examined periods, with occasional cyclical increases followed by declines. Starting from a value of 940,200 thousand US dollars in May 2017, the figure rises to a peak of approximately 1,139,400 thousand US dollars in August 2021. However, this peak is followed by a gradual decrease, with costs declining to around 1,209,600 thousand US dollars by November 2022. The pattern indicates variability in production or procurement costs, potentially influenced by seasonal factors or operational adjustments.

Accounts Payable

Accounts payable levels display an increasing trend overall, although with notable volatility. Beginning at 558,800 thousand US dollars in May 2017, payables increase to over 1,008,100 thousand US dollars by November 2022. Despite some interim decreases, the general trend suggests the company is extending more credit with suppliers over time, which could relate to greater purchasing volumes or changes in payment terms. The volatility in some quarters may reflect operational cycles or changes in supplier arrangements.

Payables Turnover Ratio

The payables turnover ratio shows considerable variation, indicating changes in how quickly the company is settling its accounts payable. Early in the period, the ratio fluctuates between approximately 4.59 and 7.09, reaching a maximum of 9.02 in February 2021. After this peak, the ratio declines and stabilizes around the range of 4.3 to 4.9 towards the later periods. A higher turnover ratio suggests faster payment to suppliers, while a decrease signals slower payment. The observed decline after early 2021 implies that, more recently, the company is taking longer to pay suppliers compared to prior periods.

Overall Insights

The interplay between increasing accounts payable and a generally declining payables turnover ratio in recent years suggests that the company is managing its supplier payments more conservatively, possibly to optimize cash flow. The cost of product sold has shown notable variation, which may be linked to fluctuations in purchasing volume or cost pressures. The combined analysis points to a strategic shift in working capital management, balancing procurement needs with payment policies.

Working Capital

Working capital exhibited significant fluctuations over the observed periods. Initially, it trended upwards from approximately 1.18 billion US dollars to a peak of around 1.61 billion by May 2018. Subsequently, a sharp decline occurred, reaching a notably low point near 275 million by November 2018. This was followed by a recovery phase with values rising again toward early 2021, peaking around 1.78 billion in February 2021. After this peak, a gradual downward trend persisted, with working capital decreasing to approximately 800 million by November 2022. These fluctuations suggest periods of both expanded and contracted operational liquidity, with some pronounced volatility especially in late 2018.

Net Sales

Net sales showed a general upward trajectory throughout the time frame, with periodic variations. Starting at about 1.94 billion US dollars in May 2017, net sales increased overall, reaching several peaks near 2.35 to 2.65 billion US dollars between late 2020 and late 2022. Notably, net sales maintained a relatively stable level in the 2.0 to 2.3 billion range in many quarters before higher peaks appeared in subsequent periods. This upward trend indicates increasing revenue generation capability, despite some quarter-to-quarter fluctuations.

Working Capital Turnover

The working capital turnover ratio exhibited considerable variability. Beginning at around 6.28 times in May 2017, the ratio fluctuated with some sharp spikes. For example, a dramatic increase occurred in November 2018, with the ratio soaring to 29.39, corresponding inversely to the trough in working capital at that time. Post this peak, turnover ratios oscillated, with several periods falling between approximately 4.8 and 7.7, interspersed with intermittent spikes (e.g., 15.6 in February 2019, 11.62 in November 2021, and above 11 in late 2022). Such volatility reflects fluctuations in the efficiency of working capital utilization relative to sales, heavily influenced by the sharp changes in the working capital base.

Overall Insights

The data reflect a dynamic operational environment characterized by volatile working capital levels which influenced working capital turnover ratios substantially. Net sales steadily increased over time, suggesting growth in market demand or pricing power. However, the inconsistency in working capital points to potential challenges or strategic changes in inventory, receivables, or payables management. Periods of extremely low working capital combined with high turnover ratios suggest episodes of tight liquidity management or rapid asset utilization. Conversely, higher working capital values with lower turnover ratios may indicate more conservative liquidity positions. Continuous monitoring and management of working capital efficiency appears critical for sustaining operational performance amid the evolving revenue levels.

Inventory Turnover

The inventory turnover ratio experienced moderate fluctuations over the observed period. From mid-2017 through early 2018, the ratio hovered around 1.7 to 2.03, indicating relatively slower inventory movement. A notable increase occurred between mid-2019 and early 2021, with ratios climbing above 3.0, peaking at 3.21 in early 2021. This suggests an improvement in inventory efficiency during this period. However, starting in mid-2021, the turnover ratio began to decline steadily, settling around 2.56 by late 2022. This downward trend reflects a deceleration in the rate at which inventory is sold or used.

Average Inventory Processing Period

The average inventory processing period, expressed in days, generally moved inversely to the inventory turnover ratio as expected. Initially, the processing period was relatively long, ranging from approximately 180 to 214 days from mid-2017 to early 2018, indicating slower inventory turnover. This period shortened significantly from mid-2019 to early 2021, reaching a low of 114 days, which aligns with the peak in inventory turnover ratios. However, from mid-2021 onward, the processing period lengthened again, exceeding 140 days toward the end of 2022, which corresponds with the decline observed in the turnover ratio. This indicates that inventory remained on hand for longer periods during this later phase.

Overall Insights

The data suggests that there was a period of improved inventory management and efficiency from approximately mid-2019 through early 2021, evidenced by higher inventory turnover and shorter processing times. This could have resulted from operational improvements, changes in product demand, or supply chain enhancements. Following this period, the decline in turnover and elongation of processing time indicate a reversal in this trend, which may warrant further investigation to determine underlying causes such as inventory buildup, shifts in sales performance, or external market factors affecting inventory movement.

Receivables Turnover Trend

The receivables turnover ratio exhibited fluctuations over the analyzed periods, generally ranging between approximately 8.3 and 11.7. There are several peaks notably in February 2020 (11.72) and February 2021 (10.97), indicating periods where the company collected receivables more frequently within the year. However, these peaks were often followed by declines, suggesting variability in how quickly receivables were converted into cash. Overall, there is no clear linear upward or downward trend, but the turnover ratio tends to oscillate close to an average near 9.5 to 10.5.

Average Receivable Collection Period Trend

The average receivable collection period generally moves inversely to the receivables turnover ratio, ranging mostly between 31 and 44 days. The shortest collection period occurred around May 2020 (31 days), aligning with the highest turnover ratio in the preceding period. Conversely, periods with lower turnover ratios correspond to longer average collection times, with peaks around August 2018 (44 days) and August 2020 (42 days). This inverse relationship aligns with the expected dynamic where higher turnover implies faster collection and shorter days outstanding.

Overall Interpretation

The company’s receivables management demonstrates cyclical variations but maintains relatively consistent efficiency in turning over receivables, typically within a range that suggests a collection period of around 35 to 40 days. Periods of enhanced performance are not sustained long term, indicating potential seasonal effects or operational adjustments rather than a structural improvement. The metrics indicate no significant deterioration or improvement in credit control policies but rather an ongoing management of receivable collections within an established performance band.

Inventory Processing Period

The average inventory processing period exhibited a generally decreasing trend over the observed timeframe. Starting at 188 days in May 2017, it increased slightly to a peak of 214 days in November 2017 but then showed a gradual decline, reaching a notably lower level of around 116-123 days between August 2019 and February 2021. After this period, there was some fluctuation, with values rising modestly again to approximately 134-142 days towards the end of 2022, suggesting some variability but still below earlier peaks.

Receivable Collection Period

The average receivable collection period remained relatively stable throughout the periods, mostly fluctuating within a narrow band of 31 to 44 days. There is no clear upward or downward trend; short-term variations are observed, with modest dips to around 31 days in May 2020 and occasional increases to the low 40s. This stability indicates consistent efficiency in receivables management across the quarters.

Operating Cycle

The operating cycle demonstrated a pattern that closely follows trends in inventory processing, with some influence from the receivable collection period. It began at 229 days in May 2017, peaked at 252 days in November 2017, and then declined significantly to a range around the mid-150s by late 2019 and early 2020. Subsequent quarters showed moderate fluctuations, with the operating cycle increasing somewhat to the mid to high 170s by the end of 2022. This reflects improvements in operational efficiency during the middle periods, followed by a mild reversal toward longer cycles in recent quarters.

Payables Turnover Ratio

The payables turnover ratio demonstrates a fluctuating pattern over the examined periods. Starting at 6.71 in May 2017, the ratio exhibited variability but generally trended downward through 2018 and 2019, reaching lows around 4.59 to 5.36 in that timeframe. Notably, there was a peak at 9.02 in February 2021, representing a significant increase in the frequency at which payables were settled during that quarter. Post this peak, the ratio declined steadily, maintaining values in the range of approximately 4.34 to 5.0 towards the end of 2022.

Overall, the payables turnover ratio indicates periods of both acceleration and deceleration in payment to suppliers, with a notable peak in early 2021 followed by a gradual decrease through 2022.

Average Payables Payment Period (Days)

The average payables payment period inversely mirrors the payables turnover trends as expected. Commencing at 54 days in May 2017, there was an observable lengthening of the payment period, especially during late 2017 and 2018, reaching highs around 80 days. A marked reduction occurred in February 2021 when the average period shortened substantially to 40 days, indicating faster payment cycles.

Following this contraction, the payment period lengthened again, rising above 70 days throughout the latter part of 2021 and sustaining this extended duration into 2022, peaking near 84 days. This pattern suggests a dynamic approach to managing payables, alternating between quicker settlements and extended payment terms over the analyzed timeframe.

Insights

The fluctuations in payables turnover and payment periods suggest the company’s varying liquidity management strategies and negotiation terms with suppliers. The sharp increase in payables turnover and corresponding decrease in payment days in early 2021 could indicate an intentional acceleration of payments, possibly to capitalize on favorable credit terms or improve supplier relationships.

Conversely, the extension of payment periods seen in late 2021 and 2022 could reflect a strategic shift to optimize working capital or respond to external financial pressures. The oscillation between shorter and longer payables cycles highlights an adaptable financial management approach, balancing cash flow needs with supplier obligations.

Average Inventory Processing Period

The average inventory processing period exhibits a fluctuating trend over the analyzed quarters. Initially, it remained relatively high, around 188 to 214 days from mid-2017 to early 2018. A notable decline begins in mid-2019, reaching a low point near 114 days by the first quarter of 2021. After this decrease, a slight upward trend is observed, with the period ending around 140 days by late 2022. This indicates improved inventory turnover efficiency during 2019-2021, followed by a modest lengthening of inventory holding time thereafter.

Average Receivable Collection Period

The average receivable collection period remains relatively stable throughout the timeline. Values oscillate mostly within the range of 31 to 44 days, showing minor periodic variations without a clear long-term upward or downward trajectory. This consistency suggests steady credit and collection management practices, with only slight fluctuations that may reflect seasonal factors or minor operational changes.

Average Payables Payment Period

The average payables payment period displays a more variable pattern. Starting around the mid-50s in days, it peaks significantly in late 2017 and 2018, reaching up to 80 days. A dip occurs in early 2021 down to 40 days, following which the period extends again, stabilizing in the mid to high 70s by late 2022. This variability could reflect shifts in supplier payment strategies or negotiations impacting the company's liquidity management and supplier relations.

Cash Conversion Cycle

The cash conversion cycle experiences a general downward trend across the period, particularly pronounced starting in mid-2019. From initial values near 175-182 days through early 2018, it steadily decreases to a low of approximately 84 days by late 2021. Slight increases follow thereafter, with the cycle settling around 94-97 days towards the end of 2022. The reduction in the cash conversion cycle indicates improved working capital management efficiency, reducing the time span between cash outflows and inflows.