Beam Inc. (NYSE: BEAM), a leading global premium spirits company, today reported results for the first quarter of 2013. Reported net sales increased 8%, benefiting from strong commercial performance and the acquisition of Pinnacle Vodka. On a comparable basis, net sales increased 3%, reflecting the comparison to the year-ago quarter when new product introductions and route-to-market transitions helped comparable net sales increase 13%.
Operating income increased 37%, benefiting from factors including favorable product mix and the timing of expenses. Diluted earnings per share from continuing operations were $0.72, up 47%. Diluted EPS before charges/gains increased 21% to $0.64.
“We’re pleased with Beam’s strong start to 2013,” said Matt Shattock, president and chief executive officer of Beam. “Even as we lapped our most challenging quarterly sales growth comparison of the year, our brands sustained their momentum in the marketplace and continued to outperform. We delivered above-market growth in North America, led by our heartland United States market, and we also continued to benefit from our sustained strength in Bourbon and successful innovations across our portfolio in key markets around the world.
“While sales were in line with our expectations, we delivered better-than-expected leverage at the bottom line, which we anticipate will reverse in the next couple of quarters. Margins benefited from factors we called out last quarter: the timing of raw materials-related costs, favorable product mix, and the carryover benefit of previously implemented price increases. Mix was better than expected due to strong demand for our premium innovations and our high-end whiskies, led by Maker’s Mark. The bottom line further benefited from an advertising shift to the
second and third quarters.” The company continues to expect that brand investment will rise at a rate in line with sales growth for the full year.
Financial Highlights for the First Quarter
Income from continuing operations was $115.8 million, or $0.72 per diluted share, versus $0.49 per diluted share in the year-ago quarter.
Excluding charges and gains, diluted EPS from continuing operations was $0.64, up 21% from $0.53 in the year-ago quarter.
Reported net sales were $577.7 million (excluding excise taxes), up 8%.
On a comparable basis, which adjusts for foreign exchange and acquisitions/divestitures, net sales were up 3%.
Comparable net sales by segment: North America +7%; Europe/Middle East/Africa (EMEA) +1%; Asia Pacific/South America (APSA) -7%.
In North America, the strong comparable sales growth reflected favorable mix, carryover pricing and the accelerated timing of innovations, which combined to overcome a challenging comparison to 12% growth a year ago.
EMEA’s comparable sales growth rate reflected a comparison to 12% growth in the year-ago quarter.
Growth in APSA was impacted by strength in the year-ago quarter when the segment’s comparable net sales increased 16% and, as expected, by lower results in India as the company repositions its business there.
Results for Power Brands in the company’s seasonally smallest sales quarter were in line with expectations, and reflected the comparison to exceptional 19% comparable net sales growth for these brands in the year-ago quarter.
Operating income was $179.0 million, up 37%.
Operating income before charges/gains was $169.0 million, up 22%.
Return on invested capital before charges/gains (rolling 12 months) was 7% and was 24% excluding intangibles.
Confidence in 2013 Outlook
“We compete in a dynamic, profitable and growing industry with excellent fundamental trends across our markets,” Shattock continued. “As we look ahead, we continue to see our global market growing in the range of 3% for the year. With the success of our investments to further strengthen our premium brand equities, drive growth through innovation and enhance our routes to market, we feel very well positioned to continue outperforming our global market in 2013 and to drive sustainable, profitable long-term growth. At the bottom line, the timing of costs that was a tailwind in Q1 will be a headwind that we expect will result in a moderate EPS growth rate over the next couple of quarters.
“Our first quarter results combined with our inherent strengths reinforce our confidence in our outlook for the full year, and we’re reaffirming our target to deliver high-single-digit growth in diluted EPS before charges/gains for 2013.”
The company also reaffirmed its target 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.
Key Brand Performance
Comparable net sales growth, year to date (January-March):
Comparable Net Sales Growth (1)
Canadian Club +8%
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.
Source: Beam Global