Beam Reports Second Quarter Results
Beam Reports Second Quarter Results
- Sales Continue to Grow Faster than Market with Strong Global Performance for Bourbon
- Innovations Across Categories Add to Quarterly Top-Line Growth
- Company Reaffirms Full-Year Earnings Target and Announces Share Repurchase Authorization
Net sales for the second quarter increased 7% and were up 5% on a comparable basis. Strong sales growth for the company's global Power Brands, led by Jim Beam, drove the quarterly sales performance.
Diluted earnings per share from continuing operations were $0.46 versus $0.63 per share in the year-ago quarter. Results in the current year period were impacted by a one-time loss on the early extinguishment of debt. Excluding charges/gains, diluted EPS was $0.64, up 8% from $0.59 a year ago, benefiting from strong sales, targeted price increases, and a lower effective tax rate.
For the first half of 2013, net sales increased 8% and were up 4% on a comparable basis. Diluted EPS increased 5% in the first half, and diluted EPS before charges/gains was 15% higher than in the year-ago period.
Driving Momentum in Key Categories
"Beam delivered strong second quarter results as five of our seven Power Brands produced double-digit sales growth," said Matt Shattock, president and chief executive officer of Beam. "Our strategy to Create Famous Brands paid off in strong demand for our flagship Jim Beam brand, which grew double digits across the US and Europe as premium innovations such as Jim Beam Honey and Devil's Cut added to growth for the core Jim Beam white label. We gained share in Tequila on strong performance for Sauza and Hornitos, and in vodka as Pinnacle continued its double-digit growth trajectory. At the same time, our total sales growth was tempered by soft conditions in the US ready-to-serve cocktails category." The company noted that an increase in US distributor inventories in the second quarter largely offset the adverse sales impact of factors previously identified by the company, principally the timing of Maker's Mark sales and lower results in India.
"At mid-year, we feel good about our strength in fast-growing segments like Bourbon, the breadth of our premium portfolio, the success of our innovation engine and our global footprint," said Shattock. "Consumer demand for our Bourbon brands around the world continued to grow at very encouraging rates, our premium innovations added to profitable growth, and we've grown sales in each of our largest markets on the back of our strong distribution organizations. We believe these advantages position us well to continue outperforming our global market."
Financial Highlights for the Second Quarter and Year to Date:
- Income from continuing operations was $74.6 million for the second quarter, or $0.46 per diluted share, compared to $101.9 million, or $0.63 per diluted share, for the second quarter of 2012.
- For the first half, income from continuing operations was $189.0 million, or $1.16 per diluted share, up 5% from $1.11 in 2012.
- Excluding charges and gains, diluted EPS from continuing operations was $0.64 for the second quarter, up 8% from $0.59 in the year-ago quarter.
- Diluted EPS before charges/gains was $1.27 for the first half, up 15% from $1.10.
- Reported net sales for the second quarter were $637.6 million (excluding excise taxes), up 7%.
- Reported net sales increased 8% for the first half of 2013.
- On a comparable basis, which adjusts for foreign exchange and acquisitions/divestitures, net sales were up 5% for the second quarter and up 4% for the first half.
- Comparable net sales by segment: North America +6% in Q2 and +7% YTD; Europe/Middle East/Africa (EMEA) +7% in Q2 and +4% YTD; Asia Pacific/South America (APSA) -3% in Q2 and -5% YTD. Results in APSA, as expected, were impacted by lower results in India as the company repositions its business there.
- Operating income for the second quarter was $160.1 million, up 27%.
- Operating income for the first half increased 32%.
- Operating income before charges/gains for the quarter was $162.5 million, up 7%.
- For the first half of 2013, operating income before charges/gains increased 15%.
- Return on invested capital before charges/gains (rolling 12 months) was 7% and was 24% excluding intangibles.
Company Reaffirms High-Single-Digit Earnings Growth Target for 2013
"Looking forward, our view of the strong fundamentals for the industry - and Beam - remains unchanged," Shattock said. "We see stable global market growth for the balance of the year, with a continued expectation that our global market will grow approximately 3% with the US in the range of 3-4%, both consistent with our long-term view.
"We continue to expect to outperform our market and we're reaffirming our target to deliver high-single-digit growth in diluted EPS before charges/gains for 2013. Our target remains the same even though it now incorporates an expectation that foreign exchange will reduce full-year earnings by approximately 5 cents per share, or 2 points of growth.
"Regarding phasing of results in the second half, the second-quarter performance of the US market and our strong innovations resulted in some distributor inventory build in Q2 that will impact our shipments in the third quarter. At the bottom line, the timing of costs that we projected would be a headwind in Q2 and Q3 will predominately impact the third quarter. As a result of these factors, we expect EPS before charges/gains in Q3 will be down versus the year-ago period before a strong finish in Q4.
"Beam entered the second half of 2013 in a strong competitive position, and we believe our agility in a dynamic global market will serve us well as we continue to create value. Our broad portfolio of premium brands, innovation capabilities, strength in Bourbon and strong global routes to market - combined with consistent execution of our strategy - give us confidence that we will gain market share globally in 2013 and continue to deliver sustainable, profitable long-term growth," Shattock concluded.
The company also reaffirmed its target to generate free cash flow for 2013 in the range of $300-350 million.
Board Authorizes Repurchase of up to 3 Million Shares
The company further announced that its Board of Directors has authorized a standing share repurchase plan, under which the company may repurchase up to 3 million common shares.
"This authorization reflects the strength of Beam's balance sheet and capital structure having reduced debt following the Pinnacle acquisition, and enables us to consider opportunistic share repurchases as we evaluate our highest return uses of our free cash," said Bob Probst, chief financial officer of Beam.
Key Brand Performance
Comparable net sales growth, year-to-date 2013 (January - June):
Results include ready-to-drink products
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.
Total represents consolidated Beam comparable net sales (excluding excise taxes), including non-branded sales.
Revision of Prior Period Financial Statements
During the close of the second quarter of 2013, the Company identified prior period errors related to the timing of revenue recognition for sales of non-branded bulk spirits, primarily Canadian whisky, dating back to 2006. The Company concluded that these errors were not material to any of the prior reporting periods and, therefore, amendments to previously filed reports were not required. However, if the entire correction was recorded in the current quarter, the cumulative impact could be material for the three and six months ended June 30, 2013. As a result, in accordance with applicable accounting guidance, the Company revised prior period financial statements to correct for these amounts. The Company also revised prior period financial statements to correct other immaterial items, principally including a $7 million adjustment to income tax expense previously reported as an out-of-period adjustment in the third quarter of 2012.
The net impact of the error corrections was a decrease in operating income of $1.8 million in the three months ended March 31, 2013, a decrease in operating income of $2.4 million and $9.9 million in the years ended December 31, 2012 and 2011, respectively, and a cumulative decrease in operating income of $10 million for periods from 2006 to 2010, prior to Beam becoming a standalone public spirits company. The attached financial information for the 2013 and 2012 periods is presented as previously reported and as adjusted for the error corrections.
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. These forward-looking statements relate to matters including market growth, our performance and the effects of the timing of expenses and foreign exchange rates. 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 before charges/gains, and free cash flow. 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 June 30,||Six Months Ended June 30,|
|(In millions, except per share amounts)||2013||
|Less: Excise taxes||(157.1||)||(156.9||)||(294.6||)||(286.0||)|
|Cost of goods sold||263.5||249.4||5.7||%||487.7||464.2||5.1||%|
|Advertising and marketing expense||104.1||98.0||6.2||%||178.9||174.7||2.4||%|
|Selling, general and administrative expense||105.9||104.7||1.1||%||208.8||205.1||1.8||%|
|Amortization of intangible assets||4.3||4.3||0.0||%||8.8||8.5||3.5||%|
|Gain on sale of brands and related assets||(0.4||)||-||(13.2||)||-|
|Business separation costs||-||13.8||-||13.8|
|Loss on early extinguishment of debt||43.1||-||43.1||-|
|Income from continuing operations|
|before income taxes||92.1||122.0||-24.5||%||244.3||231.8||5.4||%|
|Income from continuing operations||74.6||101.9||-26.8||%||189.0||178.2||6.1||%|
|Loss from discontinued operations, net of tax||(0.3||)||(0.8||)||(1.6||)||(0.1||)|
|Basic earnings (loss) per common share:|
|Diluted earnings (loss) per common share:|
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