Beam Inc. Doing Fine On Its Own

| About: Beam, Inc. (BEAM)

On Thursday, Beam Incorporated (NYSE:BEAM) reported first quarter earnings. Net sales for the quarter came in at $533.8 million, which was a 2% increase from 2011's first quarter. Operating income for the quarter was $131 million, which saw a 17% increase. Income from continued operations was $78.4 million. Earnings per share on a diluted basis were $0.49. Excluding charges and one-time items, Beam earned $0.53 per share.

The company remains on track to hit three organic growth goals:

  • Creating Famous Brands
  • Building Winning Markets
  • Fueling Our Growth

The Power Brands segment for the company continues to perform well and saw great growth numbers thanks to innovative new products. The Jim Beam brand has seen Devil's Cut and Red Stag flavors added to the original white label bourbon. Maker's Mark (Maker's 46), Courvoisier (Courvoisier Z) and Knob Creek (Single Barrel Reserve) have also sold well as their portfolio of flavor offerings expands. All together, Beam's Power Brands saw an increase of 19% in sales.

Rising Stars, which includes recently acquired brand Skinnygirl, saw strong demand and sales were up 16%. The Skinnygirl portfolio continues to expand as Beam will roll out wine and vodka offerings. Beam is also raising its advertising efforts for this brand, which saw sales increase 400% in 2011. The new "drink like a lady" advertisement campaign will kick off soon.

Beam Incorporated continues to make great strides in growing its sales overseas. Despite weak liquor sales in European regions like Spain, the western part of the continent saw increased sales. Germany, the number three bourbon country by sales, saw double digit growth during the quarter. In India, Beam's scotch brand Teacher's remains the number one scotch brand in the country. The brand continues to grow its sales in Brazil as well.

Beam reports earnings for three different regions, and all three saw strong growth. Operating income in North America increased 19% to $98 million for the quarter. Operating income increased 15% in the EMEA (Europe, Middle East, Africa) region, thanks to a 15% rise in net sales to $123 million. In the APSA (Asia-Pacific, South America) region, operating income increased 13% to $16.7 million.

The company continues to expand through acquisitions. The first quarter marked the first reported quarter with recently acquired Irish liquor brand Cooley in the Beam portfolio. The brand had a solid St. Patrick's Day and is already fitting in nicely with Beam growth brands. Recently acquired Pinnacle Vodka ("Pinnacle Acquisition and Skinnygirl Wine Make Beam Incorporated a Long Term Buy") will hit earnings in the second quarter. The Pinnacle acquisition will add $0.05 to $0.10 to 2013's earnings per share.

Beam remains the number one bourbon company in the world with a 30% market share, beating out long time rival Brown-Forman (NYSE:BF.A). Brown-Forman's Jack Daniels brand remains the best selling brown liquor in the world. Beam has leading brands Jim Beam and Maker's Mark. Competitors in the bourbon market include several privately owned companies like Heaven Hill and Wild Turkey. Diageo (NYSE:DEO), the world's largest liquor company does not have a strong bourbon brand. Diageo has long been a rumored acquirer of the Beam portfolio, since its split from Fortune Brands.

The first quarter is statistically the weakest for Beam and still beat analyst's estimates. Look for the continued strength of growing brands, acquisitions, and emerging markets to power the company through 2012.

Shares traded up 3.8% on Thursday and closed in on $60 after earnings were released. Shares are now trading at $58.83 and offer incredible growth at these levels. In my last article, I recommended buying shares around $52. I continue to think shares are worth buying under $60. The high multiple of 25 times 2012's expected earnings per share of $2.34 will scare some investors away. I think the company will beat earnings the rest of the year and will likely raise 2013's guidance based on the Pinnacle acquisition.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BEAM over the next 72 hours.