Beam reports Q3 earnings of US$83.4M, up 13% year-over-year, benefiting partly from lower year-over-year interest expense

Nevin Barich

DEERFIELD, Illinois , November 3, 2011 (Business Wire) – Beam Inc. (NYSE:BEAM - News), a leading global premium spirits company, today reported results for the third quarter of 2011. For Beam as a standalone spirits business, net sales increased 10% and diluted earnings per share rose 13% to $0.53 from $0.47 in the year-ago quarter, on an adjusted pro forma basis. Year to date, adjusted pro forma net sales are up 10% and diluted earnings per share are up 11%. Given the company’s strong year-to-date sales performance, Beam is on track to achieve full-year results towards the high end of its 2011 earnings target range.

On a reported basis under the former Fortune Brands structure, third-quarter diluted EPS was $2.67 versus $0.66 in the year-ago quarter. These results include the gain on sale from the July divestiture of the golf business and results for the Fortune Brands Home & Security business that was spun-off to shareholders on October 3, 2011.

“Beam delivered record third-quarter sales that grew faster than our markets,” said Matt Shattock, president & chief executive officer of Beam. “We outperformed at the top line on strong growth for our Power Brands, Rising Stars and successful new products, as well as some timing benefits in the U.S. and Australia.

“Our investments in brand building and innovation continued to pay off in broad-based global growth in the third quarter. Sales of our Power Brands grew 11% benefiting from standout performance for Jim Beam, Teacher’s and Courvoisier. Our Rising Star brands were sharply higher, led by strong growth from our Skinnygirl cocktails acquisition – which once again added to our overall share gain in the quarter – as well as sustained double-digit growth for super-premium brands including Knob Creek bourbon and Laphroaig Scotch.

“As anticipated, growth in Beam’s third-quarter operating income was tempered by factors including our increase of more than 20% in brand investment plus start-up costs related to new products. Starting here in the fourth quarter, increases in brand investment will moderate to a rate more in line with sales growth,” Shattock added.

Strong Year-to-Date Performance

“We are pleased with our year-to-date performance, which includes sales growth for each of our Power Brands and Rising Stars, the brands on which we focus our investments. Our successful efforts to energize our markets with dynamic innovations and speed to market have helped fuel these gains, and we’re seeing strong consumer response to new products including Devil’s Cut by Jim Beam, Knob Creek Single Barrel Reserve, Pucker Flavored Vodka and Courvoisier Rosé, as well as the international launch of innovations such as Red Stag,” Shattock continued.

Results for Beam on an adjusted pro forma basis:

Adjusted pro forma is defined as Beam results before charges/gains adjusted to assume that Beam was an independent business as of the beginning of 2010, including the impact of public company corporate expense, Beam’s tax rate, and the benefit of the debt reduction associated with the Fortune Brands separation plan. It is also adjusted for the one-time startup benefit of the new Australia spirits distribution agreement announced earlier this year.

For the third quarter:

* Net income for Beam was $83.4 million, or $0.53 per diluted share, up 13% from $0.47 in the year-ago quarter, benefiting partly from lower year-over-year interest expense.
* Net sales were $707.3 million, up 10%.
o On a comparable basis – excluding excise taxes and adjusting for foreign exchange, acquisitions/divestitures, and the ongoing impact of the new Australia spirits distribution agreement – total net sales would have been up 12%.
* Operating income was $142.4 million, up 4%.

For the year to date (January – September):

* Net income for Beam was $225.2 million, or $1.43 per diluted share, up 11% from $1.29, benefiting partly from lower year-over-year interest expense.
* Net sales were $2.04 billion, up 10%
o On the comparable basis described above, net sales were up 10%.
* Operating income was $399.5 million, up 3%.
* Return on invested capital (rolling 12 months) was 7% and was 23% excluding intangibles.

For the third quarter of 2011, including former business units of Fortune Brands:

* Reflecting Fortune Brands’ multi-business structure prior to completion of the separation – including the gain on sale from the July divestiture of the golf business and results for the Fortune Brands Home & Security business spun off in October – GAAP net income was $413.1 million, or $2.67 per diluted share, compared to $0.66 per diluted share in the year-ago quarter.
o These results reflect items including after-tax charges of $63 million for business separation costs and an after-tax gain on the sale of the golf business of $476 million.

Confidence in EPS Growth Outlook for 2011

“We continue to expect that our global spirits market will grow at a low-single-digit rate in 2011, and we’re pleased with our progress as we enter the fourth quarter,” Shattock said. “We believe the execution of our focused strategy has primed Beam to accelerate profitable long-term growth. As increases in brand investment moderate to a rate more in line with sales growth here in the fourth quarter, we expect operating income will begin to grow faster than sales. At the same time, our strong year-to-date sales performance enhances our confidence in our full-year prospects. As a result, we now expect to deliver results towards the high end of our full-year earnings target range of high-single-digit growth in adjusted pro forma diluted EPS against a base of $1.92 in 2010.”

The company also is targeting for 2011 an earnings-to-free-cash conversion rate at or above 90%, and a net debt-to-EBITDA ratio of approximately 2.5 times reflecting the company’s strong capital structure.

Growth rates presented on a comparable basis, which excludes excise taxes and adjusts for foreign exchange, and the ongoing impact of the new Australia spirits distribution agreement.

Results include ready-to-drink products

(1) Excludes Hornitos

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, Canadian Club Whisky, Courvoisier Cognac, Teacher's Scotch Whisky, Laphroaig Scotch Whisky, Cruzan Rum, Hornitos Tequila, Knob Creek Bourbon, EFFEN Vodka, Pucker Flavored Vodka, Larios Gin, Whisky DYC, DeKuyper Cordials, and Skinnygirl Cocktails. The Beam portfolio includes 10 of the world’s top 100 premium spirits brands and some of the industry’s fastest growing innovations. 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 2010 sales of $2.7 billion on volume of 33 million 9-liter cases.

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.

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