Don't Be Stingy With These Sin Stocks
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Garbo's first movie quote is one liquor companies would love to hear more often, "Pour me a whiskey and don't be stingy, baby." However it's more likely to be a request for flavored vodka these days. To attract more women drinkers alcoholic beverage companies have been floating flavored vodkas and low calorie cocktail mixes as well as saucy YouTube videos.
Wooing women as a way to improve the bottom line isn't lost on Beam (NYSE: BEAM) or Diageo (NYSE: DEO). Beam makes the saucy Sauza tequila videos, Make It with a Lifeguard, featuring a hot lifeguard and a puppy montage, and Make It With a Fireman, featuring one hot fireman speaking French and a beret wearing kitten. You're welcome, ladies.
If you can't win them over with kittens and shirtless lifeguards you haven't got a shot. And getting women to try a shot is the name of the game. Beam, the maker of Jim Beam bourbon, Maker's Mark, Canadian Club, Courvoisier cognac and other distilled spirits also bought the Bethenny Frankel Skinnygirl Cocktail line of low-calorie margarita mix for its Global Spirits line. That brand is listed as one of their high margin, high growth Rising Stars. And its Pinnacle Vodka line features sweet flavors like Whipped, Rainbow Sherbet, and Strawberry Shortcake among 27 others.
Pinnacle has also been offering YouTube videos on how to make drinks with the flavored vodkas like this bartender's nightmare, the Birthday Cake made with Pinnacle Cake vodka. (This is perfect to drink once in a lifetime on a 21st birthday.) Pinnacle is considered one of Beam's top Power Brands
No slouch either, London-based Diageo, world's largest spirits manufacturer, has expanded its line of flavored vodka Smirnoff Confectionaries since 2011 with flavors such as Whipped Cream, Fluffed Marshmallow, Iced Cake, and Kissed Caramel. Both Pinnacle and Smirnoff offer recipes of dessert flavored vodka concoctions for adventurous ladies.
And for women who want fewer calories Diageo introduced 78 calorie Smirnoff Sorbet with flavors like Raspberry Pomegranate. It also introduced Snapp, an apple champagne-like drink developed and marketed mainly to women in Kenya and since expanded to Nigeria.
How much of a dent have all these initiatives made in sales? According to Technomics the flavored vodkas gained 23% in volume sales in 2011 soon after they had been introduced to take a quarter of all US vodka sales. And vodka overall is the leader in spirit category sales, outshining whiskey, even with the newly debuted moonshine whiskeys debuted after the popularity of the Discovery Channel Moonshiners show.
Beam, the former Fortune Brands, presented at the Goldman Sachs Consumer Products Symposium in May. Of interest, Beam reported then using 50% of ad spend on TV/ online video and another 35% on digital marketing to make it the number one industry social media marketer. Also of note, Beam reported premium brand sales were picking up .
Beam is number four in premium spirits globally. It reported $2.5 billion in net sales for 2012 with 30% EBITDA margin. Beam is trading at a 25.98 trailing P/E with a 1.4% yield and a 2.10 PEG. Beam has barely moved this last year up 4.34% with mixed analyst opinion of 4 Strong Buys, 4 Buys, 3 Holds, and 2 Underperforms.
Late to the cocktail party
Competitor Brown-Forman (NYSE: BF-A) has been notably late to this ladies' cocktail party. Their Finlandia vodka brand hasn't yet ventured into the dessert flavored arena although it does have flavored vodkas, grapefruit, raspberry, citrus, and so on. However, its Jack Daniel's Tennessee Honey has been performing well with net sales doubling since its debut in 2011, presumably benefiting from a sweet attraction for the ladies.
This maker of Jack Daniel's, Finlandia vodka, Canadian Mist, Korbel champagnes, Southern Comfort, and other well known spirits did report good Q4 and full FY 2013 numbers on June 5: a 16% increase in full year diluted EPS, full year underlying sales growth of 8%, and underlying operating income growth of 13%. Net sales for FY 2013 came in at $3.78 billion. Brown-Forman also reported an improvement in premium brand sales, echoing the trend reported by Beam.
The company guided for continued strong growth for FY 2014. Brown-Forman is trading at a 25.97 trailing P/E with a yield of 1.6%. Its stock has underperformed the S&P 500, only up 18.45% despite beating estimates the last four quarters.
Meanwhile Diageo controls a quarter of the vodka market and two major spirit industry trends, low calorie drinks and flavored vodkas, are well represented at Diageo. These are so important to offset the trend toward in the US toward more beer and wine purchases and away from spirits as Fellow Fool Dan Caplinger points out.
Diageo has fourteen strategic premium brands of which the following six are number one brands in their categories globally: Johnnie Walker scotch, Jose Cuervo tequila, Crown Royal Canadian whiskey, Smirnoff premium vodka, Guiness stout, and Baileys liqueur. The company operates in 180 countries giving it the largest global reach of these three companies.
Aside from assertively targeting women as a new market the company plans to woo more premium consumers as well as court emerging markets with innovative packaging, cans or other delivery systems for smaller markets and other initiatives like the ladies' Snapp drinks in Africa and its female-oriented Eva line of wine coolers in the Phillippines.
Diageo is the best buy of the bunch here with a lower trailing P/E of 18.25 and higher yield of 1.90%. Diageo has also underperformed the S&P 500 despite its defensive nature and dependability as a "sin" stock.
That said, it isn't the pioneer in attracting the custom of women but it's close on Beam's high heels. Diageo has top brand share and better analyst sentiment with a median price target of $137.
Last call for alcohol!
Beam may be the most exciting marketer to the female drinker, but it doesn't have the advantage of size and reach that Diageo has. Brown-Foreman is far behind these other two in the wooing of women. It's also been the worst performer as a stock. If one's your limit then Diageo is your stock.
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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Beam and Diageo plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!