Beaming With Joy!

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The company I am going to analyze today has served alcohol fans all across the globe with a range of brands like Jim Beam, Maker's Mark, and Pinnacle Vodka, among others, for quite some time now. Beam (NYSE: BEAM), the fourth largest premium spirits company in the world, is just a year old company, established in October 2011 after it spun off from its former parent Fortune Brands.

If you are holding a glass of Jim Beam as you read on, all the better.

Preparing the Shots.

Beam did pretty well in its largest segment, North America, where the net sales increased 2% on a comparable basis.  The addition of Pinnacle Vodka to its product portfolio has just started to churn out positive results for this segment. With the key holiday selling season ahead, the management focuses on healthy innovations that will create product value and effective price/mix for its range of products.

The Asia Pacific/South America segment outnumbered the other segments in terms of growth, as it reported an increase of 10% in net sales on a comparable basis. This was attributed to the strong performance of its premium brands like Jim Beam, Courvoisier, Canadian Club, and Teacher's. Emerging markets like China, Brazil and India have shown promising growth, which the company aims to capitalize with better timing and innovation strategies.

Talking Numbers.

Net sales for the company were reported at $627.5 million, an increase of 8% over the previous year. On a comparable basis, adjusting for foreign exchange and impact of M&A, the net sales grew at 4%. As for the income from continuing operations, it was reported at $91.7 million, or $0.57 per diluted share, compared to a loss of $82 million or a loss of $0.53 per share for the third quarter of 2011. The operating income for the company after charges/gains was reported at $162.4 million, up 488% from the year ago quarter.

Pinnacle Vodka, Jim Beam, and Maker’s Mark, led the Power brands group, with double digit sales growth figures. The company did a good job at enhancing sales of its premium brands with effective product innovation and crafting suitable products for the different segments.

Competition eh?

Among others, Beam directly competes with Diageo (NYSE: DEO), which houses brands like Johnnie Walker and Smirnoff Vodka. The company has shown promising growth since last year, harnessing on its brand loyalty and strategic investments. As of the most recent quarter, its organic net sales slowed down a bit to around 5%, but it still continues to hold a good share of the premium spirits segment, which will ensure upbeat performance in the coming quarters.

Jack Daniel’s manufacturer Brown-Forman Corporation (NYSE: BF-B) has been a large player in the premium spirits segment across the globe. The company has painted a good picture on the revenue numbers where the net sales for the quarter ended July 31 jumped 4% compared to previous year quarter. The diluted EPS also increased around 27% at $0.69.

Molson Coors Brewing Company (NYSE: TAP) is expected to release its earnings on November 7, and the Street is expecting positive results. The company’s net income has gone down in the last two quarters. The company posted profit falling by 52.8% in the second quarter. It will be interesting to see if there are any changes in demand for beer with the oncoming winters and holiday season.

A stock to keep?

Let’s now get to the question of whether this stock should be kept or not? As you would have noticed on my previous blogs, I generally start with what I understand is a really important metric while analyzing any company i.e cash flows.

But when it comes to Beam, I am positive that cash flows is not a really good metric to look at, as because it’s a year old company. Fundamentally, for young companies the fluctuations in generation of cash flows are higher, as they have to reinvest heavily in the business for creating more business opportunities and stabilizing the running business. And, I have to say that I am pretty impressed by Beam’s strategy in this regard as they are reinvesting heavily to expand on their segments as well as coming out with newer products and other innovations.  Citing an example, Beam is heavily investing in advertising for building brand loyalty as its still at a startup stage and growing rapidly.

Talking about earnings of the company, it has showcased double-digit growth from 2011. The income from continuing operations before charges/gains was $99.2 million or $0.62 per diluted share. For the year-to-date, EPS before charges/gains is increased by 21%. This again is a big thumbs up for the company as it has been able to deliver consistent performance throughout the year. It’s commendable the way Beam recovered from the losses, after the spinoff from its parent Fortune Brands, and delivered positive numbers in the year.

As of the company management, I would have to give them a pat on the back for fueling successful growth based on key drivers like product innovation, market positioning, effective pricing, and delivering value to shareholders. The management is moving ahead with planned strategies on creating brand equity which will enable them to sustain their growth and find new opportunities.

I would recommend a hold strategy for Beam and it would be interesting to see how the company will capitalize on the upcoming holiday selling season. The past and current numbers have painted a positive picture, which reinforces the belief that it would show promising results in the upcoming busy quarter as well.     


   

 

 

 


MihirMehta has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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