Constellation Brands Inc.

The stable outlook reflects our expectation that Constellation will maintain debt to EBITDA near 3.5x while funding ongoing dividend payments and increasing share repurchases in line with its publicly stated guidance of $5 billion through fiscal 2023 (of which about $3.8 billion is remaining). In addition, we project annual free cash flow generation will remain well above $1 billion as EBITDA continues to expand in the mid-single-digit percent area. We could lower our ratings on Constellation if it sustains debt to EBITDA of more than 4x. We believe this could occur if: Its operating performance weakens due to a material production disruption in Mexico that reduces gross margins more than 300 basis points on a sustained basis; or Its financial

...We believe the company generates sufficient cash flow to sustain reduced leverage and fund growth capital expenditure (capex) and planned shareholder return increases. Constellation Brands Inc. reduced debt to EBITDA to 3.3x as of Feb. 28, 2021, compared to peak leverage of more than 4.5x in fiscal 2019 after acquiring a minority stake in Canopy Growth Corp. Leverage declined because of a combination of higher EBITDA and asset sale proceeds used to repay debt. The company's adjusted EBITDA for fiscal 2021 increased 7% relative to fiscal 2020 on increased pricing, strong consumer demand, and curtailed discretionary expenses. It also generated discretionary cash flow (DCF) of $1.3 billion, which coupled with asset sales proceeds of about $1 billion enabled the company to repay about $1.7 billion in debt in fiscal 2021. Despite planned annual capex of $1 billion over the next two years to expand its brewing capacity, continued strong FOCF conversion of EBITDA of more than 40% should enable...

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