Alcohol Rules for New Years

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Every New Year’s is celebrated in numerous ways around the world.  Some take vacations to popular destinations like New York City to watch the prominent Ball Drop.  Others reserve New Year Eve parties at the growingly popular all-inclusive events that are held in many major cities around the country.  Staying at home, going to a friend’s house party, or going downtown to the local bars are some other common things people do to celebrate the New Year.  Despite where people are or what they are doing on New Year’s Eve, alcohol is usually present – and in large amounts. 

The Playbook

Below are 10 of the popular brands/ drink labels within each of what I consider to be the three key publicly traded liquor companies.  There are other top selling brands of liquor products like Barcardi and Pernod Ricard, who make Absolut Vodka, but some of these (Barcardi) are privately owned while others (Pernod Ricard) are traded on the Euronext, the European electronic stock exchange based in the Netherlands.  Chances are that you have seen and/or consumed one or more of these popular beverages below in the past and will do so again this year.

<table> <tbody> <tr> <td> <p><strong><span><span>Diageo <span class="ticker" data-id="203299">(NYSE: <a href="">DEO</a>)</span></span></span></strong></p> </td> <td> <p><strong><span><span>Brown-Forman <span class="ticker" data-id="206639">(NYSE: <a href="">BF-B</a>)</span></span></span></strong></p> </td> <td> <p><strong><span><span>Beam Inc <span class="ticker" data-id="250179">(NYSE: <a href="">BEAM</a>)</span></span></span></strong></p> </td> </tr> <tr> <td> <p><span><span>Johnnie Walker</span></span></p> </td> <td> <p><span><span>Jack Daniels</span></span></p> </td> <td> <p><span><span>Bourbon </span></span></p> </td> </tr> <tr> <td> <p><span><span>Crown Royal</span></span></p> </td> <td> <p><span><span>Don Eduardo</span></span></p> </td> <td> <p><span><span>Devil’s Cut</span></span></p> </td> </tr> <tr> <td> <p><span><span>Smirnoff</span></span></p> </td> <td> <p><span><span>Chambord</span></span></p> </td> <td> <p><span><span>Red Stag</span></span></p> </td> </tr> <tr> <td> <p><span><span>Ciroc</span></span></p> </td> <td> <p><span><span>Early Times</span></span></p> </td> <td> <p><span><span>Black</span></span></p> </td> </tr> <tr> <td> <p><span><span>Ketel One</span></span></p> </td> <td> <p><span><span>Old Forester</span></span></p> </td> <td> <p><span><span>Rye</span></span></p> </td> </tr> <tr> <td> <p><span><span>Baileys</span></span></p> </td> <td> <p><span><span>Southern Comfort</span></span></p> </td> <td> <p><span><span>Pinnacle Vodka</span></span></p> </td> </tr> <tr> <td> <p><span><span>Captain Morgan</span></span></p> </td> <td> <p><span><span>Collingwood</span></span></p> </td> <td> <p><span><span>Calico Jack Rum</span></span></p> </td> </tr> <tr> <td> <p><span><span>Jose Cuervo</span></span></p> </td> <td> <p><span><span>Canadian Mist</span></span></p> </td> <td> <p><span><span>Eight Star</span></span></p> </td> </tr> <tr> <td> <p><span><span>Tanqueray</span></span></p> </td> <td> <p><span><span>Herradura</span></span></p> </td> <td> <p><span><span>Baker’s</span></span></p> </td> </tr> <tr> <td> <p><span><span>Guiness</span></span></p> </td> <td> <p><span><span>Woodford</span></span></p> </td> <td> <p><span><span>Maker’s Mark</span></span></p> </td> </tr> </tbody> </table>

Alcohol Rules for New Years

1)      Since 1990, total alcoholic beverage sales in the United States have more than doubled from nearly $73 billion in 1990 to over $170 billion in 2011.

2)      In 2011, liquor sales saw a 4% increase to $19.9 billion.  Total alcohol sales consist of 49%, 34%, and 17% are beer, liquor, and wine sales, respectively.

3)      While total alcoholic beverage sales have nearly doubled between 1990 and 2011, alcoholic drinks away from home purchases have nearly tripled from $35 billion in 1990 to over $92 billion in 2011.  What this means is that despite the down economy and rising liquor prices, people are still going out and buying alcohol away from home at bars, clubs, and other public events instead of buying it at liquor and food stores or in bulk for home use.

4)      Diageo has seen its share price increase over 300% with reinvested dividends the past decade, while Brown-Forman shares have increased nearly 400% with reinvested dividends over the same time frame.

<img src="" />

BF.B Total Return Price data by YCharts

 5)      Beam Inc just formed as a public company on Oct. 4, 2011, after spinning off as a part of the holding company formerly known as Fortune Brands.  Since going public under ticker BEAM, the stock has already gone up over 39% in just over a year.

<img src="" />

BEAM Total Return Price data by YCharts

6)      Profit margins for Diageo, Brown-Forman, and Beam are 21.3%, 17.1%, and 14.6%, respectively.  Better news is that all three profit margins have increased year-over-year.

7)      Not only do Americans like to drink but so does the rest of the world.  Exports last year increased 16.5%.

8)      Even though beer might be most popular in most college parties on and off campus around the country and may be consumed in large amounts for weekly sporting events on TV, beer has lost market share to liquor gradually the past 13 years – every year.

9)      Vodka is king as far as popularity among liquor.  Bourbon, whiskey, rum, and tequila are playing for second place.  The top three preferred vodka brands for drinkers away from home (bar, club, etc.) according to an NPD Group report earlier this year were Grey Goose (18%, Bacardi), Absolut (12%, Pernod Ricard), and Smirnoff (10%, Diageo).

10)   The United States is not even ranked in the top 50 countries for alcohol consumption per capita.  Moldova takes first place with a per capita consumption of 18.22 liters (4.81 gallons).  The United States is at 57th with 9.44 liters (2.49 gallons) consumed per person per year.  However, Diageo, Brown-Forman, and Beam can be considered global companies since their products are sold and consumed around the world.  Diageo alone sells its beverages in over 180 markets around the world.

11)   Diageo recently in November agreed to acquire majority stake in United Spirits for $2.1 billion.  Earlier in June, Beam acquired Pinnacle Vodka and Calico Jack rum brands.  Last year, Brown-Forman acquired the Maximus Vodka brand.  These acquisitions were neither the first nor last in recent years for these companies.  This means they are still expanding, building, and thriving overall with plenty of cash.

12)   In the past decade, Brown-Forman and Diageo have not delivered a single negative EPS quarter.  Counting from when it was associated with Fortune Brands, Beam has had just one negative EPS quarter the past decade – fourth quarter of 2008.

13)   Diageo has seen net income increase from $2.6 to $3.25 billion between fiscal years 2010-2012.  Brown-Forman’s net income increased from $449 to $513 million between fiscal years 2010-2012.  However, Beam’s net income soared from $242.8 to $911.4 million between the end of 2009 to the end of 2011.

14)   Risks for all three liquor companies include general economic conditions and credit market instability (European regions), customer defaults, competitive market pressures, changes in customer preferences and trends, strategic acquisition risks, downgrades of credit ratings, commodity and energy price volatility, changes in laws, regulations and policies as well as dozens of other uncertainties.  In my opinion, people will continue to buy liquor as they have in the past.  There are currently 18 alcoholic beverage control states in this country that for the most part regulate prices.  Although 30% of the world’s alcohol consumption overall is homebrewed (moonshine), the other 70% is still a huge number in terms of customers and revenue.

15)   Sales growth is estimated to be about 6% annually on an average basis for both Diageo and Brown-Forman through 2014.  It is nearly 8% annually for Beam.

Closing Time

The bottom line is that if you are looking for growing companies with dividends and whose products are used by people around the world, you can’t go wrong looking into these liquor companies.  Diageo could be a slightly safer bet with a 2.33% dividend to go along with a wide range of popular brands that are sold nearly everywhere.  Brown-Forman and Beam both have dividends under 2%.  In my opinion, Beam has the best opportunity to appreciate the greatest in the coming years since it is relatively new as a stock.  With a market cap of under $10 billion, Beam is over 7x less in market value than Diageo and has much more room to move up.  This is especially true on what Beam has been able to done as far as their net income bottom line annually.

In the end, remember Rule 0: Do not drink and drive this New Year’s Eve.

mikecart1 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend 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!

blog comments powered by Disqus