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Beam Posts Strong Year-End Earnings

Zacks Equity Research

The world’s fourth largest sprit company, Beam Inc. (BEAM), came up with strong financial results for the fourth quarter and fiscal 2013 yesterday. The premium spirits supplier’s adjusted earnings per share rose 15% to 77 cents in the fourth quarter, while it surpassed the Zacks Consensus Estimate of 72 cents. The company’s better-than-expected earnings were primarily driven by rapid growth of its premium brands and efficient cost control.

Net sales (excluding excise taxes) were $739.5 million, a 4.3% year-over-year increase and marginally above the Zacks Consensus Estimate of $735 million. The company’s comparable net sales, which take into account the effects of foreign exchange and acquisitions/divestitures, rose 5% in the quarter gaining from the solid demand for its premium whiskey and tequila brands, successful new-product innovations, and the return of its Indian operations to the growth trajectory.

Region wise, comparable sales were strong in North America and Europe, with Australia playing spoilsport. Analyzing by segments, comparable sales improved for North America (up 5%) and Europe/Middle East/Africa -EMEA (up 6%) segments, offset by Asia Pacific/South America –APSA (down 9%). Results in APSA suffered due to lower sales in Australia and weak year-over-year performance in India.

Adjusted operating income in the fourth quarter reflected a year-over-year improvement of 7% coming in at $189.9 million, while operating margin expanded 70 basis points to 25.7%.

Fiscal 2013 Performance

For fiscal 2013, Beam reported adjusted earnings per share of $2.63, a 10% improvement from the prior-year earnings of $2.40 and well above the Zacks Consensus Estimate of $2.59. Net sales for the year totaled $2,547.3 million, up 3.6% year over year and marginally above the Zacks Consensus Estimate of $2,544.0 million. Net sales on a comparable basis increased 2%.

Full-year earnings gain was primarily attributed to the robust sales growth, operating margin expansion and lower interest expense, while top line gained from strong regional performances, except APSA; new product launches and favorable price/mix.

Financials

Beam, which competes with Diageo plc (DEO) and Boston Beer Co. Inc. (SAM), ended the year with cash and cash equivalents of $277.2 million and long-term debt of $2,024.5 million. Shareholders’ equity was $5,074.1 million. Free cash flow at year-end was $332 million, above the higher-end of the company’s targeted range.

Recent Development and Outlook

Last month, Beam entered into a buyout deal with Japanese beverage company, Suntory Holdings Ltd., wherein the former will be acquired by the latter in an all-cash transaction. Beam remains positive about the completion of this transaction by the second quarter of fiscal 2014.

Given the pending buyout deal and its expected completion in the next couple of quarters, the company did not provide a financial guidance for fiscal 2014 and restrained from holding a conference call.

Currently, Beam carries a Zacks Rank #4 (Sell). A better-ranked winery and distillery company is Constellation Brands Inc. (STZ), which sports a Zacks Rank #1 (Strong Buy).

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