Beam Reports Third Quarter Results
Sustained Global Growth for Bourbon and Innovations Helps Drive Continued Market Outperformance
Diluted EPS before Charges/Gains Increases at Solid Double-Digit Rate
Company Reaffirms Full-Year Earnings Target
Net sales increased 8% and were up 4% on a comparable basis, even with a challenging comparison to strong North America sales in the year-ago quarter. Comparable sales growth was broad-based and benefited from innovations that improved product mix, higher pricing, and increased volumes. Comparable sales grew across the company's three segments, with particularly strong growth for the company's global Power Brands in core markets.
On a reported basis (GAAP), diluted earnings per share from continuing operations were $0.57 versus a loss of $0.53 in the year-ago quarter. Diluted EPS before charges/gains was $0.62, up 17%, with leverage delivered by sustained top-line outperformance, improved price/mix, and lower interest expense.
Through the first three quarters of 2012, reported net sales increased 5% and were up 7% on a comparable basis. Diluted EPS before charges/gains is up 21% year to date, and is up 526% on a reported basis. Reported earnings comparisons reflect the impact of costs in 2011 associated with the separation of Fortune Brands' businesses.
Stronger Portfolio, Market Position and Earnings Growth
"One year after becoming a pure-play spirits company, Beam is creating value with a stronger brand portfolio, a stronger industry position, and stronger earnings growth," said Matt Shattock, president and chief executive officer of Beam Inc. "With momentum from our investments in brand building, enhanced routes to market that leverage our broad brand portfolio, and synergy-driven acquisitions, we've exceeded our long-term goal over the past year by increasing sales at approximately twice the growth rate of our global market footprint. Our global growth is supported by our strengthened #2 position in the United States, the world's most profitable market, and fast growth in key categories and geographies around the world."
"Against this backdrop, Beam delivered better-than-expected third-quarter results as we outperformed our global market despite a challenging comparison to the timing of year-ago sales in North America. The sustained rapid growth of the global Bourbon category, excellent consumer response to our innovations and high-impact marketing, and timing of expenses helped drive upside to our expectations. Our newly acquired Pinnacle Vodka grew 23% in its first full quarter, and market outperformance in our EMEA and APSA segments further supported our results. Favorable price and product mix helped improve margins in the quarter."
Financial Highlights for the Third Quarter and Year to Date:
Income from continuing operations was $91.7 million for the third quarter, or $0.57 per diluted share, compared to a loss of $82.0 million ($0.53 per share), for the third quarter of 2011.
For the year to date (nine months), income from continuing operations was $271.4 million, or $1.69 per diluted share, up from $0.27 in 2011.
Excluding charges and gains, diluted EPS from continuing operations was $0.62 for the third quarter, up 17% from $0.53 in the year-ago quarter.
For the year-to-date period, diluted EPS before charges/gains was $1.73, up 21% from $1.43.
Reported net sales for the third quarter were $627.5 million (excluding excise taxes), up 8%.
For the year-to-date period, reported net sales increased 5%.
On a comparable basis, which adjusts for foreign exchange and acquisitions/divestitures, net sales were up 4% for the third quarter and up 7% for the year-to-date period.
Comparable net sales by segment: North America +2% in Q3 and +7% YTD; Europe/Middle East/Africa (EMEA) +5% in Q3 and +5% YTD; Asia Pacific/South America (APSA) +10% in Q3 and +8% YTD.
Operating income for the third quarter was $162.4 million, up 488%.
For the year-to-date period, operating income increased 62%.
Operating income before charges/gains for the quarter was $165.0 million, up 16%.
For the year-to-date period, operating income before charges/gains increased 14%.
Return on invested capital before charges/gains (rolling 12 months) was 7% and was 23% excluding intangibles.
Investing in Future Growth and Reaffirming 2012 Earnings Target
"Our continued strong performance, the health of the global spirits market and robust demand for Bourbon together reinforce our confidence in the strategy we discussed three months ago to increase investments in the second half of 2012 to support long-term growth. We are executing this strategy by stepping up brand-equity-building investment by a double-digit rate for a third consecutive year in 2012, and accelerating the laydown of more aged spirits to support future demand," Shattock said.
"As we had planned, the lion's share of these increased strategic investments will come in the fourth quarter. In fact, we anticipate that our fourth-quarter brand investment will be more than 20% higher than last year as we seek to further enhance our brand equities and fuel successful high-return advertising in the key holiday selling season, particularly in priority categories like Bourbon and core markets like the United States. While the timing of this increased investment will likely cause fourth quarter earnings to be down versus the prior-year period, we believe these are the right investments for the long-term momentum of our business. We are able to make these investments even while reaffirming our target for Beam's diluted EPS before charges/gains to grow at a low-double-digit rate for the full year.
"We like our continued marketplace momentum as we deliver growth on top of growth, and we expect to enter 2013 in a strong position. We will discuss our earnings outlook for the year ahead next quarter," Shattock said.
The company continues to expect that its 2012 acquisitions will be accretive to full-year earnings per share by a few cents. The company also reaffirmed that it is targeting an earnings-to-free-cash conversion rate for 2012 in the range of approximately 80%, which incorporates the company's previously discussed investment of free cash flow to barrel more aged spirits.
Key Brand Performance
Comparable net sales growth, year-to-date 2012 (January - September):
Net Sales Growth (1)
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 sales growth since completion of acquisition in June.
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, Cruzan Rum, Hornitos Tequila, Knob Creek Bourbon, Laphroaig Scotch Whisky, Kilbeggan Irish Whiskey, EFFEN Vodka, Pucker Flavored Vodka, Larios Gin, Whisky DYC, DeKuyper Cordials, and Skinnygirl Cocktails. 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 3,200 passionate associates worldwide generated 2011 sales of $2.8 billion, volume of 34 million 9-liter 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 and credit market instability, particularly in Europe; customer defaults and related bad debt expense; competitive market pressures (including pricing pressures); changes in customer preferences and trends; risks pertaining to strategic acquisitions and joint ventures, particularly financial and integration risks; any possible downgrades of the company's credit ratings; commodity and energy price volatility; risks associated with doing business outside the United States, including civil and political unrest, local labor conditions, changes in laws, governmental regulations and policies, and compliance with anti-corruption statutes; fluctuations in currency exchange rates; inability to attract and retain qualified personnel; the impact of excise tax increases and customs duties on distilled spirits; the status of the U.S. rum excise tax cover-over program; dependence on performance of distributors, promoters and other marketing arrangements; costs of certain employee and retiree benefits and returns on pension assets; tax law changes and/or interpretation of existing tax laws; potential liabilities, costs and uncertainties of litigation; ability to secure and maintain rights to trademarks and trade names; impairment in the carrying value of goodwill or other acquired intangible assets; disruptions at production facilities; and other risks and uncertainties described from time to time in the Company's Securities and Exchange Commission filings.
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, and earnings-to-free-cash conversion rate. 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. Reconciliation 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 September 30,
Nine Months Ended September 30,
(In millions, except per share amounts)
Less: Excise taxes
Cost of goods sold
Advertising and marketing expense
Selling, general and administrative expense
Amortization of intangible assets
Business separation costs
Loss on early extinguishment of debt
Income (loss) from continuing operations
before income taxes
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Less: Noncontrolling interests - discontinued operations
Net income attributable to Beam Inc.
Basic earnings (loss) per common share:
Diluted earnings (loss) per common share: