Beam Reports 2012 Fourth Quarter and Full Year Results
Beam Reports 2012 Fourth Quarter and Full Year Results
- Power Brands and Rising Stars Lead Continued Market Outperformance in Fourth Quarter and Full Year
- Earnings Growth Exceeds 2012 Target
- Targeting High-Single-Digit Growth in EPS Before Charges/Gains in 2013
For the full year 2012, reported net sales increased 7% to a record $2.5 billion. Sales for the year were up 6% on a comparable basis, significantly outperforming the company's global market. Growth of the company's premium global Power Brands and broad-based growth across geographies fueled the full-year comparable sales performance. New product innovations, higher pricing in select categories, and trading up by consumers contributed to favorable price/mix and margin enhancement. On a reported basis (GAAP), full-year diluted earnings per share from continuing operations were $2.48 versus $0.85 in 2011. Full-year diluted EPS before charges/gains was $2.40, up 13%, exceeding the company's 2012 target for low-double-digit growth and ahead of the company's long-term target of high-single-digit growth. Reported earnings comparisons largely reflect the impact of costs in 2011 associated with the separation of Fortune Brands' businesses.
For the fourth quarter, reported net sales increased 11% and net sales were up 5% on a comparable basis. Comparable sales growth reflected strong results in the core markets of the United States, Australia and Germany. Diluted EPS before charges/gains for the quarter was $0.67, down 3%, reflecting the company's previously projected 20% increase in brand-building investment. Diluted EPS from continuing operations for the quarter was up 36% on a reported basis.
Bourbon, Premium Innovations and Pricing Benefit Q4 Results
"We closed the year with another strong sales quarter as we continued to outperform our market," said Matt Shattock, president and chief executive officer of Beam. "We exceeded our expectations with better-than-anticipated global sales of Bourbon and higher-than-expected accretion from the Pinnacle acquisition. We also benefited from premium innovations across categories that improved product mix, as well as higher pricing in select categories. As we called out three months ago, Q4 EPS before charges/gains was modestly lower due to our substantial increase in brand investment in the quarter to support long-term growth."
Excellent Results in First Full Year as Beam
"Beam continued to deliver excellent results in its first full year as a focused pure-play spirits company," Shattock continued. "We created value through the long-term growth algorithm we outlined a year ago: growing sales faster than our market, operating income faster than sales, and EPS faster still. In 2012, we exceeded our expectations at both the top and bottom lines as we increased comparable sales at roughly twice the rate of our global market, and grew EPS before charges/gains ahead of our target for the year. Full-year sales growth was balanced across our three regional segments, fueled by double-digit global growth for our Power Brands and Rising Stars, and we improved margins with premium innovations and higher pricing.
"We are particularly pleased that we outperformed in 2012 even as we increased investment in the competitive position and long-term growth of our business. These investments included a double-digit increase in brand-building investment, as well as higher capital expenditures to produce more aged spirits to meet future demand. In 2012, we further strengthened our core equities with impactful brand communication on television and in digital media; we accelerated our growth with innovative new products while also opening our new Global Innovation Center; we continued to strengthen our premium portfolio by adding a Power Brand in vodka and entering Irish Whiskey; and we enhanced our routes to market across fast-growing economies like China as well as in developed markets such as Japan.
"Beam generated higher-than-expected free cash flow of $337 million, and we ended the year with a net-debt-to-EBITDA ratio of 2.8 times, better than we had targeted. We're also pleased that our 2012 acquisitions were five cents per share accretive to our full year results," Shattock said. "We believe our investments and stronger balance sheet enhance Beam's prospects to deliver sustainable, profitable long-term growth."
Financial Highlights for the Full Year 2012:
- Income from continuing operations was $398.2 million, or $2.48 per diluted share, versus $0.85 per diluted share in 2011.
- Excluding charges and gains, diluted EPS from continuing operations was $2.40, up 13% from $2.12 in 2011.
- Reported net sales were a record $2.5 billion (excluding excise taxes), up 7%.
- On a comparable basis, which adjusts for foreign exchange and acquisitions/divestitures, net sales were up 6%.
- Comparable net sales by segment: North America +7%; Europe/Middle East/Africa (EMEA) +5%; Asia Pacific/South America (APSA) +5%.
- Operating income was $575.9 million, up 46%.
- Operating income before charges/gains was $631.9 million, up 10%.
- The company generated free cash flow of $336.8 million and an earnings-to-free-cash conversion rate of 87%.
- Return on invested capital before charges/gains (rolling 12 months) was 7% and was 23% excluding intangibles.
- The company's net-debt-to-EBITDA ratio was 2.8 times at year end.
Financial Highlights for the Fourth Quarter:
- Income from continuing operations was $126.8 million, or $0.79 per diluted share, versus $0.58 in the year-ago quarter.
- Excluding charges and gains, diluted EPS from continuing operations was $0.67, down 3% from $0.69.
- Reported net sales were $709.1 million (excluding excise taxes), up 11%.
- On a comparable basis, which adjusts for foreign exchange and acquisitions/divestitures, net sales were up 5%.
- Comparable net sales by segment: North America +8%; Europe/Middle East/Africa (EMEA) +4%; Asia Pacific/South America (APSA) -2%.
- Results in North America benefited from the timing of sales in Mexico, while lower results in India adversely impacted sales in APSA.
- Operating income was $156.7 million, up 15%.
- Operating income before charges/gains was $177.3 million, up 3%.
Establishing 2013 Earnings Growth Target
The company announced that it is targeting to deliver high-single-digit growth in diluted earnings per share before charges/gains for 2013 against its 2012 base of $2.40 per share.
"We enter 2013 with an assumption that our global spirits market will grow value approximately 3%, consistent with what we saw in 2012," Shattock said. "We'll face headwinds including higher raw materials costs and challenging comparisons in India as we reposition our business there, and we're not currently assuming material new pricing in 2013. At the same time, we anticipate benefiting from several favorable dynamics: the strength of the bourbon category, our innovations and brand-building initiatives, strong growth in emerging markets, our efficiency and effectiveness agenda, and an additional five cents per share of accretion from our 2012 acquisitions. Incorporating these factors, we're targeting for 2013 to outperform our market at the top line and deliver growth in diluted EPS before charges/gains at a high-single-digit rate. With regard to phasing, we will face our most challenging comparison of the year in the first quarter as we cycle against new-product launches and route-to-market changes that helped drive comparable sales up 13% in Q1 of 2012.
"We believe that Beam is well positioned to deliver sustainable, profitable long-term growth as we continue to invest in fast-growing categories, fast-growing new products, and fast-growing markets. We feel good about our prospects for continued outperformance in 2013."
The company expects to generate free cash flow for 2013 in the range of $300-350 million, which incorporates continued investment to increase distillation capacity and produce more aged spirits to support long-term growth.
"While we have sustained investments in long-term value creation, we've also continued our track record of delivering immediate value to shareholders with the 10% increase in our dividend we announced recently," Shattock concluded.
Key Brand Performance
Comparable net sales growth, full year 2012:
Results include ready-to-drink products
(1)Comparable net sales growth rate represents the percentage increase or decrease in reported net sales in accordance with U.S. GAAP, adjusted for certain items.A reconciliation from reported to comparable net sales growth rates, a non-GAAP measure, and the reasons why management believes these adjustments are useful are included in the attached financial tables.
(2)Total represents consolidated Beam comparable net sales (excluding excise taxes), including non-branded sales.
*Reflects seven months of performance for Pinnacle since acquisition.
About Beam Inc.
As one of the world's leading premium spirits companies, Beam is Crafting the Spirits that Stir the World. Consumers from all corners of the globe call for the company's brands, including Jim Beam Bourbon, Maker's Mark Bourbon, Sauza Tequila, Pinnacle Vodka, Canadian Club Whisky, Courvoisier Cognac, Teacher's Scotch Whisky, Skinnygirl Cocktails, Cruzan Rum, Hornitos Tequila, Knob Creek Bourbon, Laphroaig Scotch Whisky, Kilbeggan Irish Whiskey, Larios Gin, Whisky DYC and DeKuyper Cordials. Beam is focused on delivering superior performance with its unique combination of scale with agility and a strategy of Creating Famous Brands, Building Winning Markets and Fueling Our Growth. Beam and its 3,400 passionate associates worldwide generated 2012 sales of $2.5 billion (excluding excise taxes), volume of 38 million 9-liter equivalent cases and some of the industry's fastest growing innovations.
Headquartered in Deerfield, Illinois, Beam is traded on the New York Stock Exchange under the ticker symbol BEAM and is included in the S&P 500 Index and the MSCI World Index. For more information on Beam, its brands, and its commitment to social responsibility, please visit www.beamglobal.com and www.drinksmart.com.
This press release contains forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Readers are cautioned that these forward-looking statements speak only as of the date hereof, and the company does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date of this release. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to: general economic conditions; competitive innovation and marketing pressures, including price; changes in consumer preferences and trends; financial and integration risks associated with acquisitions, joint ventures, and alliances, as well as potential divestitures; the price and availability of raw materials and energy; risks associated with doing business outside the United States, including changes in laws, governmental regulations and policies, compliance with anti-corruption statutes, civil and political unrest, and local labor conditions; our ability to manage organizational productivity and global supply chains effectively; the impact of excise tax increases and customs duties on our products or changes to government financial incentives; fluctuations in currency exchange rates; our ability to reach agreement on, maintain or renegotiate key agreements; potential liabilities, costs and uncertainties of litigation; our ability to attract and retain qualified personnel; changes to laws and regulations; downgrades of the Company's credit ratings; dependence on performance of distributors, promoters and other marketing arrangements; product quality issues; costs of certain employee and retiree benefits and returns on pension assets; tax law changes or interpretation of existing tax laws; ability to secure and maintain rights to intellectual property, including trademarks, trade dress and tradenames; impairment in the carrying value of goodwill or other acquired intangible assets; disruptions at production facilities and supply/demand forecasting uncertainties; breaches of data security; and other risks and uncertainties described from time to time in the Company's filings with the Securities and Exchange Commission.
Use of Non-GAAP Financial Information
This press release includes measures not derived in accordance with generally accepted accounting principles ("GAAP"), including comparable net sales, diluted EPS before charges/gains, operating income before charges/gains, return on invested capital, free cash flow, earnings-to-free-cash conversion rate, and net-debt-to-EBITDA ratio. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP, and may also be inconsistent with similar measures presented by other companies. Reconciliations of these measures to the most closely comparable GAAP measures, and reasons for the company's use of these measures, are presented in the attached pages.
|Consolidated Income Statement|
|Three Months Ended December 31,||Year Ended December 31,|
|(In millions, except per share amounts)||2012||2011||% Change||2012||2011||% Change|
|Less: Excise taxes||(167.4||)||(151.1||)||(604.2||)||(560.6||)|
|Cost of goods sold||303.8||273.1||11.2||%||1,027.5||987.8||4.0||%|
|Advertising and marketing expense||116.5||97.0||20.1||%||398.7||358.7||11.2||%|
|Selling, general and administrative expense||111.5||95.8||16.4||%||412.9||430.0||-4.0||%|
|Amortization of intangible assets||4.4||4.1||7.3||%||17.2||16.3||5.5||%|
|Business separation costs||-||(2.0||)||13.8||83.8|
|Asset impairment charges||15.6||31.3||15.6||31.3|
|Loss on early extinguishment of debt||-||15.2||-||149.2|
|Income from continuing operations|
|before income taxes||132.4||95.9||38.1||%||502.0||169.3||196.5||%|
|Income from continuing operations||126.8||91.2||39.0||%||398.2||133.3||198.7||%|
|Income (loss) from discontinued operations, net of tax||(0.5||)||(2.7||)||(15.8||)||782.2|
|Less: Noncontrolling interests - discontinued operations||-||-||-||4.1|
|Net income attributable to Beam Inc.||$||126.3||$||88.5||42.7||%||$||382.4||$||911.4||-58.0||%|
|Basic earnings (loss) per common share:|
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