Beam Inc. has reported results for the fourth quarter and full year 2011. Adjusted pro forma diluted EPS for 2011 rose 10% to $2.12, exceeding the company’s target to deliver diluted EPS growth at a high-single-digit rate. Full-year net sales increased 8% on both an adjusted pro forma and comparable basis. For the fourth quarter, adjusted pro forma diluted earnings per share increased 9% to $0.69. Fourth quarter adjusted pro forma net sales grew 1% and were up 4% on a comparable basis, despite the anticipated adverse impact of the timing of sales in Mexico and Australia, which effectively reduced sales growth by approximately 2 points.
On a GAAP basis, which includes discontinued operations of Fortune Brands, full-year diluted EPS was $5.81 versus $3.16 in 2010, and fourth quarter diluted EPS was $0.59 versus $0.55 in the prior-year quarter.
“2011 was an extraordinary year for Beam,” said Matt Shattock, president and chief executive officer of Beam. “We launched Beam as a leading standalone spirits company, while we continued to outperform our markets and prime our business for sustainable, profitable long-term growth.”
Effective Growth Strategy Driving Strong Results
“The Beam team executed well against our growth strategy in 2011, and delivered sales and earnings ahead of our long-term growth goals,” Shattock said. “We continued to Create Famous Brands with impactful marketing and another record year of innovations, led by our bourbon brands. We Built Winning Markets by enhancing our strong distribution network, such as with our strategic distribution partnerships in the U.S. and Australia. And we Fueled Our Growth with heightened efficiency and effectiveness, including completion of our U.S. bottling facilities consolidation. Beam strengthened its balance sheet in 2011 and invested resources to generate both top-line momentum and long-term value with synergy-driven acquisitions in two dynamic growth categories: ready-to-serve cocktails and Irish whiskey. We see Skinnygirl cocktails and the Cooley Irish whiskey brands as excellent platforms for long-term value creation.
“Beam finished 2011 with a very good fourth quarter that was a bit above our expectations,” Shattock continued. “Comparable sales increased 4% in the quarter and adjusted pro forma diluted EPS was up 9%. While the timing of sales – principally due to a significant inventory reduction in Mexico in advance of our distributor transition in that market – reduced Q4 sales by about 2 points of growth, market-beating performance for our global Power Brands, as well as new-product launches, helped drive our gains in the quarter.”
Results for Beam (formerly known as Fortune Brands, Inc.) on a GAAP basis:
GAAP results reflect the divestiture of the golf business as a discontinued operation, beginning in the quarter ended June 30, 2011, and the spin-off of the Home & Security business, beginning in the quarter ended December 31, 2011. Prior period results have been reclassified to conform to discontinued operations presentation. GAAP results prior to the fourth quarter of 2011 reflect items such as historical Fortune Brands corporate expenses, which are not representative of the Beam business on a standalone basis, and include the gain on sale from the divestiture of the golf unit, a non-cash write-down of identifiable indefinite-lived intangible assets, and a loss on early extinguishment of debt.
For the full year 2011:
• Net income was $917.0 million, or $5.81 per diluted share, compared to $487.6 million, or $3.16 per diluted share, in 2010.
• Net sales were $2.3 billion (excluding excise taxes) compared to $2.1 billion in 2010.
• Operating income was $395.5 million compared to $456.2 million in 2010.
For the fourth quarter:
• Net income was $94.1 million compared to $85.4 million for the fourth quarter of 2010.
• Net sales were $637.5 million (excluding excise taxes) compared to $629.8 million for the fourth quarter of 2010.
• Operating income was $136.2 million compared to $140.1 million for the fourth quarter of 2010.
Results for Beam on an adjusted pro forma basis:
The results presented below are on an adjusted pro forma basis due to the separation of Fortune Brands’ businesses during 2011. Adjusted pro forma is defined as Beam’s GAAP results from continuing operations excluding charges/gains, further 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 separation of Fortune Brands’ businesses. It is also adjusted for the one-time startup benefit of the new Australia spirits distribution agreement announced in early 2011. Reconciliations of these measures to the most closely comparable GAAP measures are presented in the attached financial tables.
For the full year 2011:
• Income from continuing operations for Beam was $334.5 million, or $2.12 per diluted share, up 10% from $1.92.
• Net sales increased 8% to a record $2.3 billion (excluding excise taxes). On a comparable basis – adjusted for foreign exchange, acquisitions/divestitures, and the ongoing impact of the new Australia spirits distribution agreement – net sales were also up 8%.
o By geographic region, comparable net sales were up 8% in North America, up 8% in Europe/Middle East/Africa (EMEA), and up 8% in Asia Pacific/South America (APSA).
• Operating income was $572.2 million, up 4%.
• The company achieved its earnings-to-free-cash conversion target of 90%.
• Return on invested capital was 7% and was 24% excluding intangibles.
• The company’s net-debt-to-EBITDA ratio was 2.5 times at year end.
For the fourth quarter:
• Net income for Beam was $109.2 million, or $0.69 per diluted share, up 9% from $0.63 in the year-ago quarter.
• Net sales increased 1% to $637.5 million (excluding excise taxes). On the comparable basis described above, net sales were up 4%.
o Comparable net sales were up 2% in North America (impacted by the Mexico distributor transition), up 5% in EMEA, and up 7% in APSA.
• Operating income was $172.7 million, up 4%.
Outlook for Strong Earnings Growth in 2012
“As we enter 2012, we’re encouraged by our continued marketplace momentum,” Shattock said. “We expect our global spirits market to continue to grow value in the range of 3%, supported by solid growth in mature markets such as the U.S. and double-digit growth in key emerging markets. Against this backdrop, we see market growth across key spirits categories, including strong worldwide demand for bourbon. We’ve built our brand investment to competitive levels, we’re focusing that investment on our biggest brand initiatives in our best markets, we have a robust new-product pipeline, and our unique combination of scale with agility is a competitive advantage.
“In 2012, we believe Beam is primed to solidly outperform our markets at the top line, expand operating income faster than sales, and grow diluted EPS even faster. On the back of our very strong 2011 results, our earnings target for 2012 is to grow diluted EPS before charges/gains at a high-single-digit rate against our 2011 base of $2.12, consistent with the long-term goals we outlined to investors prior to the spin-off. We’re also delivering immediate value to shareholders with an attractive dividend, which our board has just increased by 8%.” The company also is targeting for 2012 an earnings-to-free-cash conversion rate in the range of 90%.
“Beam is already off to a strong start in 2012, and our prospects are enhanced by our upcoming innovations, some of which will favorably impact Q1 results. We’ll also continue to benefit from the Skinnygirl acquisition, which will annualize late in Q1,” Shattock added.
First quarter GAAP comparisons will be adversely impacted by the one-time start-up benefit of the Australia distribution partnership that significantly benefited sales and operating income in the first quarter of 2011.
“2011 was a year of dramatic change and progress for Beam. The people of Beam feel very good about how far we’ve come, where we are, and where we’re headed in 2012 and beyond,” Shattock concluded.