Mixed Earnings Results In The Alcohol Sector

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Includes: BEAM, SAM
by: Valuentum

A pair of alcohol producers reported earnings recently. Boston Beer (NYSE:SAM), maker of Sam Adams, reported net operating earnings of $1.19 per share for the second quarter, a year-over-year increase of 9%, somewhat shy of The Street's expectations. Revenue grew 10% to $147.5 million, which was also slightly below consensus expectations. The company maintained its full year 2012 earnings per share guidance in the range of $3.80 to $4.20. Though the firm is facing some cost pressures from barley and wheat, we suspect overall industry price increases should make higher Sam Adams prices fairly acceptable. Operating cash flow is down from a year ago, but we think the craft beer trend is still alive. However, the firm scores a 4 on our Valuentum Buying Index (our stock-selection methodology), and we think shares are overvalued at current levels.

On the other hand, spirits company Beam (NYSE:BEAM) reported stronger than expected earnings in the second quarter. Diluted earnings per share from operations grew 16% year-over-year to $0.58, a few cents higher than consensus expectations. Revenue grew 4.4% to $595 million, which was also slightly higher than The Street predicted. Several liquors' year-to-date growth has been superb, including Jim Beam (up 11%), Maker's Mark (up 29%) and SkinnyGirl, which is up 81% year-to-date. With premium brands like Maker's Mark performing so well, it appears consumers may be trading up to higher-quality alcohols. North America drove most of the revenue growth, increasing 11.8% (on a non-GAAP basis) to $373 million. Operating income in North America subsequently grew nearly 10% to $104 million. Demand for alcohol has remained fairly resilient, up 3.9% in constant currencies in the firm's Europe, Middle East and Africa segment (and down just 1.1% in its Asia/South America segment). Like Boston Beer, shares have been bid up relatively high as investors seek companies with products that will remain in demand regardless of economic conditions. The firm scores a 4 on our Valuentum Buying Index, and we think its shares are overvalued, too.

We're not fans of either of these alcohol producers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.