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Constellation Brands Inc (NYSE:STZ)
Operating Income
$1,500 Mil (TTM As of Feb. 2015)

Constellation Brands Inc's operating income for the three months ended in Feb. 2015 was $354 Mil. Its operating income for the trailing twelve months (TTM) ended in Feb. 2015 was $1,500 Mil.

Operating margin is calculated as operating income divided by its revenue. Constellation Brands Inc's operating income for the three months ended in Feb. 2015 was $354 Mil. Constellation Brands Inc's revenue for the three months ended in Feb. 2015 was $1,356 Mil. Therefore, Constellation Brands Inc's operating margin for the quarter that ended in Feb. 2015 was 26.08%.

Good Sign:

Constellation Brands Inc operating margin is expanding. Margin expansion is usually a good sign.

Constellation Brands Inc's 3-Year average Growth Rate for operating margin was 34.30% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Constellation Brands Inc's annualized return on capital for the quarter that ended in Feb. 2015 was 14.61%. Constellation Brands Inc's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Feb. 2015 was 31.67%.

Operating income is also linked to Joel Greenblatt’s definition of earnings yield. Constellation Brands Inc's earnings yield (Joel Greenblatt’s) for the quarter that ended in Feb. 2015 was 5.06%.


Definition

Operating income, sometimes also called Earnings Before Interest and Taxes (EBIT), is the profit a company earned through operations. All expenses, including cash expenses such as cost of goods sold (COGS), research & development, wages, and non-cash expenses, such as depreciation, depletion and amortization, have been deducted from the sales.

Constellation Brands Inc's Operating Income for the fiscal year that ended in Feb. 2015 is calculated as

Operating Income (EBIT)(A: Feb. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=6028-3449.4-1078.4
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-202--202
=1,500

Constellation Brands Inc's Operating Income for the quarter that ended in Feb. 2015 is calculated as

Operating Income (EBIT)(Q: Feb. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=1356.2-758.6-243.9
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-47.4--47.4
=354

Operating Income (EBIT)(Q: Feb. 2015 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=418.2-47.4-17.1
=354

Constellation Brands Inc Operating Income for the trailing twelve months (TTM) ended in Feb. 2015 was 392.2 (May. 2014 ) + 378.7 (Aug. 2014 ) + 375.6 (Nov. 2014 ) + 353.7 (Feb. 2015 ) = $1,500 Mil.

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Explanation

1. Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition.

Constellation Brands Inc's annualized Return on Capital (ROC) for the quarter that ended in Feb. 2015 is calculated as:

Return on Capital (ROC)(Q: Feb. 2015 )
=(EBIT - Adjusted Taxes)/Average Total Capital
=Net Income/( (Total Capital (Q: Nov. 2014 ) + Total Capital (Q: Feb. 2015 ))/ 2 )
=858.4/( (5784.9 + 5967)/ 2 )
=858.4/5875.95
=14.61 %

where

Total Capital(Q: Nov. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=3030.8 + 2419.1 + 335
=5784.9

Total Capital(Q: Feb. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=2910.8 + 2681.6 + 374.6
=5967

Note: The Net Income data used here is four times the quarterly (Feb. 2015) net income data.

2. Joel Greenblatt’s definition of Return on Capital:

Constellation Brands Inc's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Feb. 2015 is calculated as:

ROC (Joel Greenblatt’s)(Q: Feb. 2015 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=Operating Income/Average of (Net PPE+Net Working Capital)
     Q: Nov. 2014  Q: Feb. 2015
=Operating Income/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=1414.8/( ( (2419.1 + max(1952.3, 0)) + (2681.6 + max(1880.5, 0)) )/2 )
=1414.8/( ( 4371.4 + 4562.1 )/2 )
=1414.8/4466.75
=31.67 %

where Working Capital is:

Working Capital(Q: Nov. 2014 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(701.3 + 1927.2 + 335) - (907.6 + 44.5 + 59.1)
=1952.3

Working Capital(Q: Feb. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(598.9 + 1827.2 + 374.6) - (781 + 53.4 + 85.8)
=1880.5

When net working capital is negative, 0 is used.

Note: The Operating Income data used here is four times the quarterly (Feb. 2015) operating income data.

3. It is also linked to Joel Greenblatt’s definition of Earnings Yield:

Constellation Brands Inc's Earnings Yield (Joel Greenblatt’s) for the quarter that ended in Feb. 2015 is calculated as:

Earnings Yield (Joel Greenblatt’s)=Operating Income (TTM)/Enterprise Value (Q: Feb. 2015 )
=1500.2/29666.1288
=5.06 %

4. EBIT is also linked to Operating Margin:

Constellation Brands Inc's Operating Margin for the quarter that ended in Feb. 2015 is calculated as:

Operating Margin=Operating Income (Q: Feb. 2015 )/Total Revenue (Q: Feb. 2015 )
=353.7/1356.2
=26.08 %

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Be Aware

Compared with a company’s EBITDA margin, Operating Margin can be manipulated by adjusting the rate of depreciation, depletion and amortization (DDA).

If a company is facing competition, its Operating Margin may decline. Often the Operating Margin declines well before the company’s revenue or even profit decline. Therefore, Operating Margin is a very important indicator of whether the company is facing problems.

For instance, by 2012, Nokia (NOK)’s problems were well known and its stock had lost more than 90% of its market value since 2007. But Nokia’s Operating Margin had already been in decline since 2002, although its earnings per share were still rising. Investors who paid attention to Operating Margin would have avoided this huge loss. The same can be said for Research-in-Motion (RIMM).

Therefore, Operating Margin is a very important screening filter for GuruFocus. GuruFocus’s Buffett-Munger screener requires that the profit margin is either consistent or expanding. The Model Portfolio of the Buffett-Munger screener has outperformed the market every year since inception in 2009.


Related Terms

Revenue, Cost of Goods Sold, Selling, General, & Admin. Expense, Research & Development, Gross Profit, EBITDA, Depreciation, Depletion and Amortization, Return on Capital, Return on Capital (Joel Greenblatt’s), Earnings Yield, Operating Margin


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Constellation Brands Inc Annual Data

Feb06Feb07Feb08Feb09Feb10Feb11Feb12Feb13Feb14Feb15
Operating Income 666699-357303125034875232,4381,500

Constellation Brands Inc Quarterly Data

Nov12Feb13May13Aug13Nov13Feb14May14Aug14Nov14Feb15
Operating Income 159127711,674364329392379376354
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