Beam reports Q3 net earnings of US$84.9M, down 11.9% from year-ago period as net sales fall 4.5% to US$598.7M
October 31, 2013
– Strong Growth for Bourbon Brands in North America and Europe in Quarter
Timing of Shipments in U.S. and Performance in Asia-Pacific Adversely Impacted Results
Company Expects Strong Fourth Quarter; Outlook for Full-Year Earnings Remains in Target Range
Beam Inc. (BEAM), a leading global premium spirits company, today reported results for the third quarter of 2013.
Net sales for the third quarter were lower by 4% on a reported and comparable basis. Sales were adversely impacted an estimated 7 points by the timing of shipments in the United States, Australia and emerging markets, together with a challenging comparison in India.
Diluted earnings per share from continuing operations were $0.52 versus $0.61 per share in the year-ago quarter. Results in the current-year period were impacted by a net charge of 7 cents per share related to items including early extinguishment of debt and organizational streamlining. Excluding charges/gains, diluted EPS from continuing operations was $0.59 versus $0.63 a year ago, reflecting the lower sales and the timing of raw materials-related costs, partly offset by the benefit of a lower effective tax rate.
For the first nine months of 2013, net sales increased 3% and were up 1% on a comparable basis, adversely impacted by an estimated 3 points from lower year-to-date results in India and the timing of shipments in emerging markets and Australia. Diluted EPS was off 2% in the first nine months, and diluted EPS before charges/gains was 8% higher year to date.
Favorable Demand Trends in Key Premium Categories
“While our shipments in the quarter were adversely impacted by several timing-related factors, our consumer sell-through strengthened in North America and we sustained outperformance in Europe/Middle East/Africa (EMEA). Each of these segments has grown comparable sales 4% year to date,” said Matt Shattock, president and chief executive officer of Beam.
“As expected in the quarter, distributors in the U.S. decreased inventories and the ready-to-serve cocktails category once again declined. Even so, U.S. consumer takeaway accelerated in the quarter as our leading Bourbon, Tequila and Vodka brands gained momentum,” Shattock said. “In our EMEA segment, we continued to deliver above-market performance, led by Jim Beam’s strength in Germany and across Europe. Indeed, our industry-leading Bourbon portfolio grew comparable sales at a double-digit rate in North America and in Europe. In Asia-Pacific/South America (APSA), we faced a tough sales comparison, including the final quarterly lap of our repositioning program in India. Even so, results in APSA were below expectations due principally to the timing of shipments in softer emerging markets and weak market conditions and reduced trade inventory levels in Australia. Gross margins for the quarter were better than expected due to the timing of costs.
“Despite our lower third quarter results, we continue to anticipate delivering good growth for the full year at the top line and even stronger growth at the bottom line. We believe the fundamentals of our business remain strong – particularly our leadership of the Bourbon category, our strong position in the U.S. and global routes to market, and our success in driving growth through innovation. These strengths put us in a good position to drive sustained outperformance over the long term.”
Financial Highlights for the Third Quarter and Year to Date:
Income from continuing operations was $84.9 million for the third quarter, or $0.52 per diluted share, compared to $98.4 million, or $0.61 per diluted share, for the third quarter of 2012.
For the year to date (nine months), income from continuing operations was $273.9 million, or $1.68 per diluted share, versus $1.72 in 2012.
Excluding charges and gains, diluted EPS from continuing operations was $0.59 for the third quarter, down 6% from $0.63 in the year-ago quarter.
For the year-to-date period, diluted EPS before charges/gains was $1.86, up 8% from $1.73.
Reported net sales for the third quarter were $598.7 million (excluding excise taxes), down 4%.
Reported net sales increased 3% for the first nine months of 2013.
On a comparable basis, which adjusts for foreign exchange and acquisitions/divestitures, net sales were down 4% for the third quarter and up 1% for the nine months.
Comparable net sales by segment:
North America -1% in Q3 and +4% YTD. Third quarter segment sales were adversely impacted an estimated 5% by the reduction of U.S. distributor inventory levels.
Europe/Middle East/Africa (EMEA) +3% in Q3 and +4% YTD.
Asia-Pacific/South America (APSA) -20% in Q3 and -10% YTD. Segment results were adversely impacted an estimated 16% in Q3 and 10% YTD by the timing of sales in Australia and in emerging markets, together with a challenging comparison in India. These emerging markets dynamics particularly impacted sales of the Courvoisier and Teacher’s brands.
Operating income for the third quarter was $144.9 million, down 11%.
For the year-to-date period, operating income increased 16%.
Operating income before charges/gains for the quarter was $148.0 million, down 10%.
For the year-to-date period, operating income before charges/gains increased 6%.
Return on invested capital before charges/gains (rolling 12 months) was 7% and was 23% excluding intangibles.
Outlook for Market Outperformance with Earnings Growth Faster than Sales
“We continue to expect a strong fourth quarter, based on an assumption of continued favorable demand trends in our core U.S. market, a gradual market recovery in Australia, and the benefit of timing in emerging markets, coupled with favorable comparisons in India,” said Shattock. “Excluding the impact of our repositioning in India, we’re targeting full-year comparable sales growth that outperforms our global market, with operating income growth faster than sales, and EPS growth even faster. Given our lower-than-expected results in APSA, we see full-year earnings tracking towards the low end of our target range to deliver high-single-digit growth in diluted EPS before charges/gains for 2013 – and that outlook continues to include an estimated two points of adverse impact from foreign exchange for the year.
“Our confidence in Beam’s prospects going forward is underpinned by the strong fundamentals and sustained growth of our global spirits market, disciplined execution of our strategy to Create Famous Brands, Build Winning Markets, and Fuel our Growth, and the skill and passion of our highly motivated consumer-focused team.”
The company’s full-year target for free cash flow is now in the range of $275-325 million.
Key Brand Performance
Comparable net sales growth, year-to-date 2013 (January – September):
Net Sales Growth (1)
Power Brands +2%
Jim Beam +3%
Maker’s Mark +17%
Canadian Club +10%
Rising Stars -4%
Knob Creek +15%
Basil Hayden’s +34%
Local Jewels -6%
Value Creators -4%
Total (2) +1%
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.
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, Pinnacle Vodka, Canadian Club Whisky, Courvoisier Cognac, Teacher's Scotch Whisky, Skinnygirl Cocktails, Cruzan Rum, Hornitos Tequila, Knob Creek Bourbon, Laphroaig Scotch Whisky, Kilbeggan Irish Whiskey, Larios Gin, Whisky DYC and DeKuyper Cordials. 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 3,400 passionate associates worldwide generated 2012 sales of $2.5 billion (excluding excise taxes), volume of 38 million 9-liter equivalent cases and some of the industry’s fastest growing innovations.
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.
Industry Intelligence editor's note: In an omitted table, the company reported third-quarter 2013 net income of US$84.9 million and net sales of $598.7 million compared to third-quarter 2012 net income of $98.4 million and net sales of $626.7 million.
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