Wine Industry Financial Analysis
DESCRIPTION OF BUSINESS
Canandaigua Brands, Inc. (formerly Canandaigua Wine Company, Inc.) is a producer and supplier of wine and an importer and producer of beer and distilled spirits in the United States. It maintains a portfolio of over 130 national and regional brands of beverage alcohol which are distributed by over 850 wholesalers throughout the United States and selected international markets. Its beverage alcohol brands are marketed in three general categories: wine, beer and distilled spirits. Brands include: Paul Masson, Manischewitz, Monte Alban, Almaden, Barton’s Gin and Corona Beer.
Management performance is good.
Canandaigua’s return on assets is better than the industry standard for 1998, and just under the industry standard in 1997. The company’s management has been able to improve the company’s ROA by almost doubling net income from the prior year. Management has in the past done a good job of utilizing its assets, and by the latest results is doing an even better job. Canandaigua’s gross margin(25.62) is less than the industry standard(43.80%). It appears that the company’s production costs are greater than others in the industry. Profit margin(6.78%) is greater than the industry standard(6.64%) in 1998. Canandaigua is very good at controlling selling & general administrative expenses. Higher sales in 1998 resulted primarily from additional beer sales, largely Corona Beer sales, additional table wine sales and additional spirits sales. The company has increased its return on common stockholder’s equity(12.84%), compared to the industry standard of 10.89%. Canandaigua does a fair job of controlling borrowing. Interest expense was reduced by decreasing the company’s average borrowings.
Short-term liquidity is good.
Canandaigua has exceeded the industry standard current ratio(1.80) for both 1998(1.99) and 1997(2.03). The company exceeds the industry’s quick ratio as well. Canandaigua’s accounts receivable turnover is getting better, but is still higher by 6.42 days. The company’s days inventory is less than half of the industry standard, and almost three times less than the other two companies analyzed. Canandaigua could do a better job utilizing interest free financing. Its accounts days payable is much less than the industry standard. Cash conversion is much lower than others in the industry as well as the industry standard. This is probably due to the amount of beer that is sold, as opposed to wine which requires longer aging time.
Long-term liquidity is good.
Very few assets are required to service debt. Canandaigua’s debt to asset ratio is much lower(.33) than the industry standard(.63). This seems to be the case with the other two companies within this analysis. The company needs to continue to increase net income and reduce debt to improve its interest coverage ratio. Altman’s Z shows that there...