Constellation Brands Inc. (NYSE:STZ)

The analysis of the intangible assets over the six-year period reveals several notable trends and changes.

Goodwill

The goodwill balance shows slight fluctuations, increasing from approximately $7.92 billion in 2017 to a peak of about $8.09 billion in 2018 and 2019, before declining to roughly $7.76 billion in 2020. It then stabilizes near $7.79 billion in 2021 and $7.86 billion in 2022. This pattern indicates a moderate contraction in goodwill during 2020, potentially reflecting impairments or divestitures, followed by a mild recovery.

Customer Relationships

Customer relationship assets remain relatively stable, with minor decreases from $89.1 million in 2017 to $87.1 million in 2022. The overall decline is marginal, suggesting steady valuation of customer-related intangibles.

Other Intangible Assets

Other intangible assets show slight growth, rising from $19.9 million in 2017 to $20.9 million in 2022, indicating modest incremental investments or revaluations in miscellaneous intangible categories.

Amortizable Intangible Assets

The gross carrying amount of amortizable intangible assets remains fairly constant, hovering around $109 million throughout the period with a small dip in 2020. In contrast, accumulated amortization consistently increases from $58.7 million in 2017 to $86.3 million in 2022. This increase in amortization leads to a steady decline in the net carrying amount of these assets, dropping from $50.3 million in 2017 to $21.7 million in 2022. The data indicates ongoing amortization expense impacting the net book value of these assets significantly over time.

Trademarks and Nonamortizable Intangible Assets

Trademarks, categorized as nonamortizable intangible assets, decrease noticeably from $3.33 billion in 2017 to $2.69 billion in 2020, followed by slight increases in 2021 and 2022. The initial decline may reflect impairments, disposals, or revaluations, while the subsequent increases suggest stability or minor additions.

Total Intangible Assets

The aggregate intangible assets amount declines from approximately $3.38 billion in 2017 to $2.72 billion in 2020, then shows incremental growth reaching $2.76 billion by 2022. This pattern reflects the trends seen in trademarks and amortizable intangibles, where impairment or amortization impacts are partially offset by later gains or additions.

Total Goodwill and Intangible Assets

The combined total of goodwill and intangible assets peaks near $11.39 billion in 2018, with a subsequent decline to around $10.48 billion in 2020. This reduction is followed by a modest increase to approximately $10.62 billion by 2022. The overarching trend shows some contraction in the asset base during 2020, possibly due to economic or strategic factors, with gradual recovery afterward.

In summary, the financial data indicates relative stability in goodwill with minor fluctuations, a consistent amortization impact reducing net amortizable intangible assets, and a notable dip followed by recovery in trademarks and total intangible assets. These movements suggest a combination of normal amortization processes, asset impairments, and selective asset additions over the observed period.

Total Assets

The reported total assets exhibited an upward trend from February 28, 2017, reaching a peak in February 28, 2019. After this peak, there was a decline observed through to February 28, 2022. Notably, the value increased from 18,602,400 thousand US dollars in 2017 to a high of 29,231,500 thousand in 2019, then decreased to 25,855,800 thousand by 2022.

When adjusted for goodwill, total assets followed a similar overall pattern but at lower absolute levels. Adjusted total assets increased from 10,681,900 thousand in 2017 to 21,142,700 thousand in 2019, and subsequently declined to 17,993,400 thousand by 2022. This suggests that a significant portion of the assets reported in the higher values may be attributable to goodwill and intangible assets, particularly in the years preceding 2019.

Stockholders' Equity

The reported total stockholders’ equity for Constellation Brands Inc. grew steadily from 6,891,200 thousand in 2017 to 12,551,000 thousand in 2019, then experienced minor fluctuations, reaching 13,598,900 thousand in 2021 before decreasing notably to 11,731,900 thousand in 2022. This rise and subsequent decline may reflect changes in retained earnings, comprehensive income, or other equity components during the period.

Adjusted total stockholders’ equity, which accounts for goodwill, shows a markedly different trend. It began with negative equity in 2017 at -1,029,300 thousand and was almost neutral in 2018 at -37,000 thousand. This improved substantially to 4,462,200 thousand in 2019. Following this, the adjusted equity remained positive but declined over subsequent years to 3,869,500 thousand by 2022. The negative to positive transition and subsequent decline suggest adjustments related to goodwill significantly impacted the equity position, indicating that reported equity figures may be influenced by intangible asset valuations.

Insights and Implications

The disparity between reported and adjusted asset and equity figures across the years highlights the importance of considering goodwill in the financial analysis of the company. The peaks in reported total assets and equity are partially driven by goodwill and other intangibles. Adjusted figures offer a more conservative perspective, showing lower asset and equity bases, especially in earlier years.

The declining trend in both reported and adjusted assets from 2019 onwards could indicate asset disposals, impairments, or shifts in business strategy. Meanwhile, the volatility in adjusted equity suggests fluctuations in the underlying tangible net assets. These patterns should be further examined to understand the drivers, including potential impairments of goodwill or revaluation of intangible assets.

Total Asset Turnover

The reported total asset turnover shows a declining trend from 0.39 in 2017 to 0.28 in 2019, followed by a slight recovery to 0.34 by 2022. On the other hand, the adjusted total asset turnover, which accounts for goodwill, starts higher at 0.69 in 2017 and declines more steeply to 0.38 in 2019 before gradually increasing to 0.49 in 2022. This indicates that when excluding goodwill, asset utilization efficiency initially weakened significantly but showed signs of improvement in the later years.

Financial Leverage

The reported financial leverage steadily decreased from 2.7 in 2017 to 1.99 in 2021, then slightly rose to 2.2 in 2022. Conversely, the adjusted financial leverage, available from 2019 onward, exhibits higher values, starting at 4.74 in 2019 and fluctuating to 4.65 by 2022 after a dip to 3.33 in 2021. This disparity reflects the considerable impact of goodwill on the company’s leverage when adjusted, with leverage appearing significantly higher once goodwill is taken into account.

Return on Equity (ROE)

The reported ROE peaked at 28.82% in 2018, then experienced a sharp decline to near zero in 2020 and showed a partial recovery to 14.69% in 2021 before declining again to -0.34% in 2022. The adjusted ROE data, starting from 2019, shows a notably higher figure of 77% in 2019, followed by volatility including negative returns in 2020 and 2022. The adjusted ROE highlights increased volatility and higher peaks compared to reported figures, indicating that goodwill adjustments reveal greater variability in equity performance.

Return on Assets (ROA)

Reported ROA increased from 8.25% in 2017 to 11.75% in 2019, then dropped precipitously to near zero in 2020 before recovering somewhat to about 7.37% in 2021 and falling again in 2022. The adjusted ROA generally shows higher values than the reported ROA, rising from 14.37% in 2017 to 18.62% in 2018 and then declining steadily to negative territory during 2020-2022. This suggests that excluding goodwill portrays a more pronounced decrease in asset profitability over recent years with sharper downturns.

General Observations

The reported metrics demonstrate a general weakening of the company’s efficiency and profitability from 2018 onward, with major declines coinciding with the years 2020 to 2022. The adjusted metrics, which exclude goodwill from the calculations, commonly reveal higher leverage and more volatile returns but also confirm the downward trends in profitability and asset usage efficiency. The divergence between reported and adjusted figures underscores the significant role goodwill plays in the financial structure and performance indicators of the company. The data indicates challenges in maintaining profitability and efficient asset use, especially in recent years.

The analysis of the financial data over the six-year period reveals several key trends related to both reported and goodwill adjusted asset values, as well as their corresponding turnover ratios.

Total Assets

Reported total assets show an overall increasing trend from US$18.6 billion in 2017 to a peak of US$29.2 billion in 2019, followed by a decline to US$25.9 billion by 2022.

Adjusted total assets, which exclude goodwill, increase significantly from US$10.7 billion in 2017 to US$21.1 billion in 2019, then decrease gradually to US$18.0 billion in 2022. This pattern mirrors the reported asset movement but with consistently lower values, indicating a considerable amount of goodwill recorded in the assets.

Total Asset Turnover

Reported total asset turnover begins at 0.39 in 2017, decreases to 0.28 in 2019, and then slightly recovers to 0.34 by 2022. This suggests a decline in asset efficiency during the middle years, followed by modest improvement.

Adjusted total asset turnover, calculated on a goodwill-adjusted asset base, starts notably higher at 0.69 in 2017 and decreases to 0.38 in 2019, then steadily rises to 0.49 by 2022. The adjusted turnover is consistently higher than the reported, reflecting better utilization of tangible assets excluding goodwill.

Insights

The increase in total assets until 2019 coupled with decreasing asset turnover ratios indicates that asset growth was not matched by proportional increases in revenue generation, suggesting reduced efficiency or possibly significant asset acquisitions during that period.

From 2019 onwards, the decline in total assets alongside improving turnover ratios may imply a streamlining phase or asset write-downs that enhanced asset usage effectiveness.

The difference between reported and adjusted figures underscores the impact of goodwill on the asset base, influencing reported asset size and turnover. Excluding goodwill reveals higher turnover ratios, suggesting that reported figures may understate operational efficiency.

The analysis reveals several notable trends and shifts in the financial position over the periods observed.

Assets

Reported total assets show an overall increasing trend from 18,602,400 thousand US dollars in February 2017 to a peak of 29,231,500 thousand US dollars in February 2019, followed by a decline to 25,855,800 thousand US dollars by February 2022. Adjusted total assets, excluding goodwill, also increased markedly from 10,681,900 thousand US dollars in February 2017 to 21,142,700 thousand US dollars in February 2019, but then decreased each subsequent year, reaching 17,993,400 thousand US dollars by February 2022.

Stockholders’ Equity

Reported stockholders’ equity experienced growth from 6,891,200 thousand US dollars in February 2017 to a high of 13,598,900 thousand US dollars in February 2021, before decreasing to 11,731,900 thousand US dollars in February 2022. In contrast, the adjusted stockholders’ equity, which accounts for the elimination of goodwill, began with negative values (-1,029,300 thousand US dollars in February 2017) and transitioned to positive figures starting in February 2019 (4,462,200 thousand US dollars), increasing to 5,805,400 thousand US dollars in February 2021, but then declined to 3,869,500 thousand US dollars in February 2022.

Financial Leverage

The reported financial leverage ratio revealed a steady downward trend from 2.7 in February 2017 to a low of 1.99 in February 2021, indicating a relative decrease in leverage, followed by a slight increase to 2.2 in February 2022. Conversely, the adjusted financial leverage ratio, which factors out the effect of goodwill, was unavailable for the early years but shows a decline from 4.74 in February 2019 to 3.33 in February 2021, then rising again to 4.65 in February 2022. This suggests higher leverage levels when goodwill is excluded, along with greater volatility over time.

Overall, the data indicate that goodwill plays a significant role in shaping the reported financial position, as evidenced by the substantial differences between reported and adjusted figures. Asset growth peaked in the 2019 fiscal year under both reported and adjusted measures, followed by contraction in subsequent years. Stockholders’ equity adjusted for goodwill remains considerably lower than reported equity and displays greater fluctuations. The financial leverage ratios also differ notably between reported and adjusted bases, with the adjusted ratio demonstrating higher leverage levels and more pronounced changes. The trends suggest cautious monitoring of leverage and asset valuation, particularly considering the impact of goodwill on the balance sheet structure.

The financial data reveals several discernible trends in the company’s equity and return on equity (ROE) over the six-year period under review.

Reported Total Stockholders’ Equity

The reported total stockholders’ equity shows a general upward trajectory from 2017 to 2021, increasing from approximately $6.89 billion to a peak of around $13.60 billion. However, in 2022, there is a noticeable decline to about $11.73 billion. This suggests the company experienced growth in equity for the majority of the period, followed by a decrease in the final year.

Adjusted Total Stockholders’ Equity

The adjusted total stockholders’ equity exhibits significant fluctuations. It starts negative in 2017 at approximately -$1.03 billion, approaches near zero in 2018, then turns positive and rises to about $4.46 billion by 2019. It maintains positive values through 2021, reaching around $5.81 billion, before declining to roughly $3.87 billion in 2022. These shifts indicate that after adjusting for goodwill or other factors, the equity position improves substantially from 2017 onward but also experiences a decline toward the end of the period.

Reported Return on Equity (ROE)

The reported ROE follows an initially strong performance, beginning at 22.28% in 2017 and peaking at 28.82% in 2018. It remains relatively stable at 27.38% in 2019 before plunging sharply to -0.1% in 2020. There is partial recovery to 14.69% in 2021, but the figure drops again to a slightly negative -0.34% in 2022. This pattern reflects volatility in profitability and suggests challenges during 2020 and 2022, possibly linked to adverse operational or market conditions.

Adjusted Return on Equity (Adjusted ROE)

The adjusted ROE starts with missing values in 2017 and 2018, but in 2019, it shows an exceptionally high 77%, followed by a negative value of -0.27% in 2020. In 2021, there is a notable rebound to 34.42%, which then falls to -1.04% in 2022. These swings are more pronounced than the reported ROE, implying that adjustments have a significant impact on profitability metrics, highlighting heightened volatility in the company’s adjusted earnings performance.

Overall, the equity shows growth with some recent decline, while the return on equity, both reported and adjusted, demonstrates considerable fluctuation with sharp downturns in certain years. This volatility could reflect changing operational conditions, goodwill impairments, or other extraordinary items affecting net profitability and equity valuations in the latter part of the period analyzed.

Total Assets

Reported total assets exhibited a generally increasing trend from 2017 through 2019, rising from approximately 18.6 billion US dollars to 29.2 billion US dollars. However, from 2020 onward, a decline is observed, with reported assets decreasing to about 25.9 billion US dollars by 2022.

Adjusted total assets, which exclude goodwill, also followed a similar pattern. They increased steadily from roughly 10.7 billion US dollars in 2017 to 21.1 billion US dollars in 2019, then contracted to approximately 18.0 billion US dollars in 2022.

Return on Assets (ROA)

Reported ROA showed improvement from 8.25% in 2017 to a peak of 11.75% in 2019, indicating enhanced profitability relative to total assets. However, ROA sharply dropped to near zero in 2020 and exhibited recovery to 7.37% in 2021, followed by a decline again in 2022 to negative 0.16%, suggesting increased operational challenges or asset inefficiencies.

Adjusted ROA, which factors out the influence of goodwill, displayed a stronger initial performance with 14.37% in 2017, peaking at 18.62% in 2018 before declining steadily to negative values by 2020 and 2022. The adjusted figures underscore a more pronounced volatility and lower returns on net tangible assets from 2020 onward.

Summary of Insights

The data reveals a growth phase from 2017 to 2019, characterized by asset accumulation and improving profitability. This period was followed by a contraction phase starting in 2020, where both assets and returns declined significantly.

The divergence between reported and adjusted asset values demonstrates the material impact of goodwill on the balance sheet, with adjusted measures indicating tighter asset bases and more volatile profitability ratios.

The notable decline in both reported and adjusted ROA after 2019 suggests challenges affecting asset utilization and operational efficiency, possibly relating to external market conditions or internal strategy shifts.