Business Context and Reporting Period
This Form 8-K, filed on August 26, 2019, by Constellation Brands, Inc. (STZ), discloses Regulation FD information regarding the company's equity method investment in Canopy Growth Corporation ("Canopy"). The filing details the recognition of Canopy's results of operations on a two-month lag. Specifically, Constellation will recognize Canopy's results for the period April 1, 2019, through June 30, 2019, in its consolidated financial statements for the three and six months ended August 31, 2019.
Key Financial Metrics
The filing provides specific financial impacts of the Canopy investment on Constellation's net income for the periods ended August 31, 2019. The data is presented in U.S. dollars in millions.
| Metric | Three Months Ended Aug 31, 2019 | Six Months Ended Aug 31, 2019 |
|---|---|---|
| Equity in earnings (losses) - GAAP | $(75.5) | $(181.5) |
| Net income (loss) attributable to CBI - GAAP | $(54.3) | $(132.5) |
| Equity in earnings (losses) - Non-GAAP (Comparable) | $(54.8) | $(109.2) |
| Net income (loss) attributable to CBI - Non-GAAP (Comparable) | $(38.5) | $(77.3) |
The filing does not provide standalone revenue, cash flow, debt, or liquidity metrics for Constellation Brands, Inc. for this period; it focuses exclusively on the equity earnings impact from Canopy.
Material Changes and Adjustments
The difference between GAAP and Non-GAAP (Comparable) results is driven by specific adjustments management excludes to evaluate underlying business trends. For the six months ended August 31, 2019, the total comparable adjustments amounted to $72.3 million. Key adjustments include:
- Net (gain) loss on fair value financial instruments: $34.1 million
- Flow through of inventory step-up: $11.8 million
- Share-based compensation expense related to acquisition milestones: $7.7 million
- Acquisition costs: $7.2 million
- Other (gains) losses, net: $11.5 million
Constellation's ownership percentage in Canopy varied during the period, at 35.8% for the period ending March 31, 2019, and 35.6% for the period ending June 30, 2019.
Guidance, Outlook, and Risks
The filing does not contain forward-looking guidance, outlook, or management commentary regarding future performance beyond the disclosure of the accounting lag for Canopy results. The primary risk highlighted is the volatility associated with the equity method investment, specifically the unrealized net loss from the mark-to-fair value of securities and the impact of Canopy's issuance of additional stock (dilution), which are excluded from comparable measures.
Investor Verification Checklist
- Verify the exact ownership percentage of Canopy Growth Corporation held by Constellation Brands as of the most recent reporting date.
- Review the full Q2 2019 earnings release to see how the $(54.3) million GAAP loss from Canopy impacts total consolidated net income.
- Confirm the specific components of the "Other (gains) losses, net" adjustment to understand the nature of the $11.5 million impact.
- Monitor Canopy Growth Corporation's own financial filings for the periods April 1, 2019, through June 30, 2019, to validate the source data used for the equity earnings calculation.