Beam Management Discusses Q4 2012 Results - Earnings Call Transcript

Beam (NYSE:BEAM-OLD) Q4 2012 Earnings Call February 1, 2013 10:00 AM ET

Executives

Matthew John Shattock - Chief Executive Officer, President, Director, Member of Executive Committee and Member of Corporate Responsibility Committee

Robert F. Probst - Chief Financial Officer and Senior Vice President

Analysts

Dara W. Mohsenian - Morgan Stanley, Research Division

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

Vivien Azer - Citigroup Inc, Research Division

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Ann H. Gurkin - Davenport & Company, LLC, Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Kenneth Perkins - Morningstar Inc., Research Division

Anthony Garcia

Operator

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to Beam's Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] Thank you. Now I would like to turn the call over to Matt Shattock, President and CEO of Beam. Sir, you may begin your conference.

Matthew John Shattock

Thank you, Andrea. Good morning. Bob Probst and I would like to welcome you to our discussion of Beam's 2012 fourth quarter and full year results. Before we begin, please note that our presentation includes forward-looking statements. These statements are subject to risks and uncertainties, including those listed in the cautionary language at the end of our news release and in our SEC filings, and our actual results could differ materially from those currently anticipated. This presentation also includes certain non-GAAP measures that are reconciled to the most closely comparable GAAP measures in our news release or in the supplemental information linked to the Webcast and Presentations page on our website.

Now in a few minutes, Bob will cover our results for the quarter and the year in some detail. But first, I'd like to discuss 3 themes to set the context for today's discussion: first, our strong performance in our first full year as Beam; second, the actions we have taken during that period to further strengthen Beam's competitive position in our industry; and third, why we feel good about our prospects in 2013 and beyond.

So I'll begin with a few words about 2012. We're pleased that Beam continued to deliver excellent results in its first full year as a pure-play spirits company. Beam is growing on growth by delivering against our long-term algorithm that we outlined a year ago, growing sales faster than our market, ROI faster than sales and EPS faster still.

In 2012, we grew comparable sales 6%, which is roughly twice the rate of our global market. We grew operating income before charges and gains faster than sales at 10%. And we grew EPS before charges and gains even faster, up 13%, exceeding both our earnings target for 2012 and our long-term goal.

We generated free cash flow of $337 million during a year in which we invested significantly in our assets to support the future growth of our aged spirits and invested in new assets in Kentucky. And we closed the year with another strong sales quarter and full year top line growth across our 3 segments. Our market outperformance was driven by double-digit growth for our global Power Brands and Rising Stars, and we improved margins with premium innovations and higher pricing.

Beam is delivering these results by continuing to execute consistently against our proven growth strategy, creating famous brands with a focused portfolio of strong consumer equities, building winning markets with an excellent sales and distribution network across our industry's most profitable and growing markets and fueling our growth through relentless focus on driving effectiveness and efficiency across our business.

Moving to my second theme, it is noteworthy that we achieved these results while making significant investments to strengthen Beam's competitive position and long-term growth in several critical areas. Foremost amongst these is our broad portfolio of premium brands, which we supported for the third consecutive year of double-digit increased investment in brand equity building and innovations. The core of our portfolio strength lies in our heartland Bourbon category. Bourbon is continuing to experience strong global growth, led by the U.S. where it's been the fastest-growing large category for the past 2 years across core markets from Australia to Germany and many developed and emerging markets in between.

Beam has the broadest Bourbon portfolio in the industry. Brands like Jim Beam and Maker's Mark have been our first priorities for investment and delivered excellent global growth as a result. And with this heritage, flavor profile and versatility, we believe America's native spirit has a bright future around the world.

Another aspect of our portfolio strength lies in our leading brands in scotch, cognac and tequila, with Teacher's, Courvoisier and Sauza, the world's #2 premium tequila. These brands give us robust premium growth platforms in the fast-growing emerging markets and have enabled us to penetrate each of our priority emerging markets through the Western spirits category most aligned to local consumer preference.

The other dimension of our portfolio that is of growing importance is our competence in building and growing what we call lifestyle beverages that tap into prevailing consumer trends such as the appeal of low calorie, the reward of familiar and indulgent flavors and the convenience of ready-to-serve and ready-to-drink formats. As a result, we've been able to attract new consumers to our brands through innovations like Canadian Club RTD products, which has emerged as a challenger to beer, and also into new categories like vodka and ready-to-serve through the acquisitions of Pinnacle and Skinnygirl. We're delighted by the performance of these new assets, which both grew strong double digits in 2012. Skinnygirl and Pinnacle have enhanced the breadth of our portfolio and are excellent platforms for continued innovation.

We're particularly pleased that our investments in talent and capabilities are paying off in best-in-class marketing to support our brand portfolio. Advertising Age recently named Beam one of the top 10 U.S. marketers of 2012 across all industries, and Jim Beam shared top honors for setting the spirits industry standard in the use of digital media in the Digital IQ Index.

And to further support the sustained growth of our brands, particularly aged spirits, we made significant investments over the past year in our capacity and capability. That includes accelerated investment to distill and lay down more bourbon, scotch and cognac; increase distillation capacity and construct additional aging warehouses in Kentucky and Scotland; and accelerate completion of an ongoing program begun in 2011 to substantially increase production capacity for Maker's Mark.

These investments build upon enhancements we've made recently to establish our North American bottling center of excellence in Frankfort, Kentucky and in Clermont, Kentucky to build the new Jim Beam American Stillhouse visitors' experience, along with our new Global Innovation Center, both of which we opened last October and which we believe will be a competitive advantage for Beam.

The other area we've invested the strength in our long-term competitive position has been in our priority markets. Our powerful #2 position in the U.S., the world's most profitable market and our heartland, has been the focal point of our synergy-driven M&A activity, which has enhanced our portfolio and given the strong presence across the fastest-growing segments.

This has also enabled us to sharpen our portfolio by reducing complexity in our presence in lower-margin segments like economy vodka with the divestiture of Wolfschmidt, another economy brand, which closed yesterday.

We've bolstered our position in other core markets like Australia and Germany, the world's #2 and #3 Bourbon markets. Our enhanced strategic partnership with CCA is proving very effective in Australia, and our focus of increased investment in Germany have delivered outstanding results over the past year. And we strengthened our position in other developed markets like Japan, where we've consolidated our entire portfolio into our Suntory partnership, which will advance the growth of our Bourbon brand in that important market.

At the same time, we've made good progress over the last year to build strong platforms for growth across a wide range of emerging markets. We're especially pleased with the results of our route-to-market change in China that helped us boost sales and profits significantly in 2012. And the investments we've made to strengthen our brands and infrastructure in Brazil, Mexico, Russia and Eastern Europe have all yielded very positive results.

Concluding with my third theme, it's on this foundation that we entered 2013 with confidence. Beam competes in a growing and resilient industry that performs well in most economic conditions. We're encouraged by current industry trends, including a good holiday selling season and a gradual improvement in the pricing environment in North America, as well as the continued growth of Western spirits in fast-growing and emerging economies. Against this backdrop, we believe Beam is well positioned to deliver sustainable, profitable long-term growth as we continue to invest in attractive categories, brand-building innovation and fast-growing markets.

And we will continue to maintain our focus over the long term on 3 primary growth drivers to help us outperform. We aim to drive about half of our sales growth from our Power Brands and Rising Stars in our core markets, as we seek to outperform with excellent marketing, consumer activation and strong distribution in categories like Bourbon by markets like the U.S., Australia and Germany.

We aim to deliver the balance of sales growth from new sources of growth, principally from innovation and from emerging markets in the year, and we'll focus on nurturing our most exciting innovations in 2012 while we bring to market promising new products such as Sauza Sparkling Margarita, our ready-to-serve mojito from Skinnygirl and Jacob's Ghost White Whiskey from Jim Beam.

We've also built excellent momentum in emerging markets like Russia, Brazil, China and Mexico and the opportunity to leverage recent investments in new markets, such as Turkey and Poland, even as we reposition our business in India. Bob will give you an update on India in a moment.

And lastly, we intend to extend our track record of driving sustained growth and returns through focused investment in our brands, markets and people. And we believe our strong stewardship of capital, balance sheet strength and agility enable us to continue being a lead player in our dynamic industry.

So in summary, based upon our excellent 2012 results and Beam's stronger competitive position, we do feel good about our prospects for sustained outperformance in 2013.

Our CFO, Bob Probst, will now give you a close look at our fourth quarter and full year performance, including the results of our 3 segments and our brand groups. Bob?

Robert F. Probst

Thanks, Matt. Before discussing our performance, a few words on the global market in which we compete, which grew consistent with our expectations for the year. We estimate that our global market footprint grew value a little better than 3% in 2012. Among our core markets, we saw market value growth in the 3% to 4% range in the U.S.; very modest growth in Australia, where economic challenges have negatively impacted consumer confidence; and low single-digit market growth in Germany. At the same time, trading conditions were challenging in Western European markets like Spain, where value declined to mid- to high-single digits; and the U.K., where value is relatively flat.

In emerging markets, we're continuing to see double-digit market growth. Also, against our assumptions heading into the year, the U.S. trended a little stronger than anticipated, with international a little softer. As the year came to a close, we were encouraged by the holiday season positive demand trends, including trade-up by consumers and slow but steady improvements in pricing, particularly in the U.S. where we were out front with pricing actions, and more producers have since taken price.

Looking to 2013, we're assuming that the fundamental growth trends across our market footprint will broadly continue at a rate similar to 2012.

Now turning to our results, and starting with sales for the full year. Reported net sales, which exclude excise taxes, came in at $2.5 billion, up 7%. Reported sales reflected a headwind from FX of approximately 1 point, more than offset by the addition of Pinnacle sales. On a comparable basis, which adjust for foreign exchange and the impact of M&A, our full year net sales grew 6%. That's approximately twice the growth rate of our global market. Full year sales were driven by double-digit growth for our Power Brands and Rising Stars and the benefit of our brand-building innovation strategy which combined to deliver strong price/mix. Our premium innovations led our 2 points of favorable mix, and we gained 1 point of price on top of the 3% increase in 9-liter equivalent case volumes for the year.

Looking at sales for the fourth quarter. Q4 reported net sales grew 11% to $709.1 million, again benefiting from the addition of Pinnacle. On a comparable basis, Q4 sales were up 5%. The top line included high single-digit growth for our global Power Brands and strong double-digit growth for our Rising Stars, as we benefited from demand for our core brands, augmented by innovations and select price increases. Sales also benefited by about 1 point from the timing of sales in Mexico, more than offset by a couple of points from lower results in India.

Turning to operating income. Reported operating income for the full year was $575.9 million versus $395.5 million in 2011. As a reminder, reported earnings comparisons are impacted by cost in 2011 related to the separation of Fortune Brands businesses.

On a before-charges/gains basis, full year operating income was up 10% to $631.9 million. Raw material increases approached $35 million, above our $30 million estimate and stronger-than-expected Bourbon sales hold for additional cost increases into 2012. The $35 million increase was largely offset by our efficiency and effectiveness program that delivered savings at the high end of our 1% to 2% target for annual reduction in cost of goods sold.

We're also pleased that even with high input costs and strategic brand investments ahead of sales, gross and operating income margins for the full year were accretive, 30 and 40 basis points respectively, on a before-charges/gains basis.

For the fourth quarter, reported operating income was $156.7 million, up 15%, and included a $16 million noncash impairment of a Local Jewels brand in Spain in light of that market-sustained decline. On a before-charges/gains basis, operating income for Q4 was $177.3 million, up 3%. As we told you to expect, we saw lower gross margins in the quarter, adversely impacted by timing of higher input costs and initial addition of Pinnacle. As anticipated, fourth quarter OI was impacted by our strategic brand investments, which were up 20% in Q4, principally in North America.

Moving to income from continuing operations. On a reported basis, income from continuing operations for 2012 was $398.2 million or $2.48 per diluted share versus $0.85 in 2011, which reflected the Fortune Brands separation costs. Excluding charges and gains, income from continuing operations for 2012 was $385.6 million or $2.40 per diluted share. That's up 13% from $2.12 a share in 2011, ahead of our low double-digit target for the year.

For the fourth quarter, income from continuing operations was $126.8 million or $0.79 per diluted share versus $0.58 in the year-ago quarter. Excluding charges and gains, Q4 income from continuing operations was $108.2 million or $0.67 per diluted share. While that's modestly off from $0.69 in Q4 of 2011, which we previously noted would likely be due to our significantly increased investments in Q4, our EPS performance exceeded our expectations due to our strong top line growth and accretion from Pinnacle in the quarter. We're pleased with accelerated realization of the cost synergies we anticipated from our acquisitions, which delivered $0.05 in 2012 versus our prior assumption of a few cents.

Now turning to our 3 segments. I'll start with a reminder that our reported segment results under GAAP exclude charges and gains. We also present segment results on a constant currency basis, which adjusts for foreign exchange and sales on a comparable basis, which adjust for both acquisitions, divestitures and foreign exchange.

Starting with our largest segment, North America. Constant currency full year sales were $1.46 billion, up 15%, reflecting strong comparable sales growth in the addition of Pinnacle Vodka. On a comparable basis, North America full year sales increased 7%, largely reflecting strong growth across the segment, including double-digit growth for our Bourbon Power Brands, Skinnygirl and Pinnacle, as well as double-digit growth in Mexico following our distributor transition there.

Innovations helped drive our North America sales growth, enhanced our mix and built equity back to our brands. Our Skinnygirl extensions, new Red Stag flavors, Knob Creek Rye and Pinnacle Pumpkin Pie were among the new products that helped accelerate the top line growth.

Q4 sales in North America were $389.7 million in constant currency, up 20%, reflecting underlying sales growth, the addition of Pinnacle and an easy comparison in Mexico. On a comparable basis, North America fourth quarter sales increased 8%. Continued outperformance in Bourbon, double-digit growth for Pinnacle and the Skinnygirl franchise and industry-leading price/mix contributed to the Q4 sales increase. The decline also benefited about 2 points from the timing of shipments in Mexico, as we left the quarter of destocking in advance of our successful distributor transition. Through the holiday season in the U.S., we estimate market value remained in the healthy 3% to 4% growth range we saw throughout the year. And we were pleased with our overall performance.

Moving onto the OI line. North America's operating income for the full year came in at $389.9 million, up 8% in constant currency, benefiting from strong volumes, favorable product mix driven by innovations and targeted price increases.

In the fourth quarter, OI in North America was $83.6 million in constant currency, down 9%, driven by the outsized Q4 increase in brand investments that we previously called out.

Looking to 2013 in North America, while our last [ph] record in innovation in the U.S., we're again targeting to outperform our market in that segment.

Now looking at Europe, Middle East, Africa or EMEA. 2012 EMEA sales came in at $541.1 million, up 7% in constant currency. On a comparable basis, EMEA's full year sales were up 5%. Full year sales reflected strong double-digit growth in the segment's core market of Germany, mid-single-digit growth in the U.K., double-digit gains in emerging markets like Russia and Central Europe and in the travel retail channel. These gains more than offset our sales decline in Spain, where we managed to outperform the very challenging market.

EMEA created value in numerous ways in 2012, led by strong double-digit growth for Jim Beam across the segments. We reinvigorated the brand in the U.K. and in Germany, Jim Beam extended its market leadership in American whiskey with strong brand activation innovation, including Red Stag, Jim Beam Honey, Devil's Cut, Lime Splash RTD and Hot Punch. In Russia, Jim Beam leads the 4 Power Brands that are fueling our success in that market. Strong performance for Jim Beam, our Bourbon innovations and emerging markets shared in delivering a substantial majority of our sales growth in this segment.

Constant currency Q4 sales in EMEA were $179.7 million, up 5%. On a comparable basis, EMEA's fourth quarter sales increased 4%. As for the full year, strength in Germany, the U.K. and Russia more than offset the challenging market in Spain.

Moving to operating income in EMEA. OI in the segment was $128.9 million for the year, up 7% in constant currency, benefiting from higher volumes and price/mix. For Q4, OI in EMEA was $54.6 million, up 8% in constant currency.

Looking at EMEA in 2013, we're targeting to continue outperforming on the strength of our Bourbon brands, innovations and activation in Germany, stronger competitive position in the U.K., share gains in the declining Spain market and a robust growth in the emerging markets of Russia and Eastern Europe.

Turning to APSA. Full year constant currency sales in APSA were $501.1 million, up 3%. APSA's growth rate was adversely impacted by challenging comparison early in the year in Australia due to pipeline fill in 2011 for our CCA distribution partnership. On a comparable basis, APSA's 2012 sales were up 5%. The segment benefited from modest full year sales growth in Australia plus very strong growth in Brazil, China and North Asia and favorable price/mix. Emerging markets delivered the majority of growth in APSA. Our Power Brands grew high single-digit for the segments. Devil's Cut was the top new product launch in Australia, should help strengthen Jim Beam's position as the market's #1 spirit. Double-digit growth for Canadian Club supported our performance in Australia, and Courvoisier's strong double-digit gains powered our results in Asia.

Q4 sales in APSA were $137.8 million, down 2% on both the constant currency and comparable basis. APSA's Q4 included strong growth in markets including Australia, driven by innovations and share gains, New Zealand, North Asia and Brazil. Offsetting these gains were the adverse impact of changes we've implemented in India related to the compliance investigation we discussed last quarter. That impact at APSA's top line was 9 points in Q4 and 2 points for the full year.

Moving to operating income in APSA. OI in the segment was $104.2 million for the year, a better-than-expected increase of 15% in constant currency that leverage primarily from our route-to-market enhancements in China and Southeast Asia.

For Q4, OI in APSA was $36.9 million, up 22% at level FX, largely reflecting the benefits of our new route-to-market leverage in China and expense restraints in India.

As we look to outperform in APSA in 2013, we believe we are well-positioned in the segment's core market of Australia; we're excited about our enhanced opportunity for our Bourbon brands in Japan, where our new distribution arrangement with Suntory began last month; and we see excellent opportunity in emerging markets such as Brazil, China and Southeast Asia.

As APSA also includes India, I'd like to give you a brief update on our business there. Our follow-up compliance investigation in our India business that we discussed last quarter is making progress. And having taken corrective actions has significantly reduced our commercial activity in the market. We are making progress on repositioning our India business to restore our place in the market. To size our India business for you, India represented about 2% of Beam's total 2012 sales and a smaller percentage of operating income.

Regarding the near-term impact, the fourth quarter is seasonally large in India, so it has an outside impact on APSA's Q4 results. The EPS before charges/gains impact for Beam in the quarter, fourth quarter, was $0.01. We also incurred charges for investigation costs in the quarter. And at this stage, it's premature to speculate on final costs related to this matter.

Looking to 2013, we anticipate India will adversely impact results in APSA through Q3, and this is factored into our targets for 2013. As we disclosed in November, we voluntarily notified the appropriate authorities in the U.S. of our internal investigation, and we're keeping it posted on our progress.

So while we face some near-term headwinds in India, we are looking ahead. We remain committed to the market, and we are confident in our long-term prospects there. India represents a highly attractive business for us with the strength of the Teacher's brand, the #1 scotch in India, the determination of our local team there and the market's strong growth opportunity.

Turning now to the full year sales performance of our key brands, which we present on a comparable basis. About 60% of our sales come from our global Power Brands, and we're pleased that our brand-building investments are paying off in strong growth.

Comparable sales for our Power Brands increased 10% for the year, following a 9% gain in 2011. Jim Beam demonstrated its strongest growth in decades. After increasing 7% in 2011, sales for Jim Beam increased 10% in 2012, and the brand reached a record 7 million 9-liter equivalent cases.

Our sustained investments to build Jim Beam's brand equity are paying off in strong brand health, excellent demand trends in the U.S. and accelerated international growth. In addition to generating sales growth for the core Jim Beam White, the brand's premium innovations like Red Stag, Jim Beam Honey and Devil's Cut are attracting new consumers around the world and further enhancing brand perceptions.

Maker's Mark continued its impressive growth on growth with another year of double-digit gains. Maker's Mark sales were 15% higher in 2012, even as we managed supply in the second half of the year due to liquids constraints that we called out in August. That said, we expect to have supplies of Maker's to support very healthy growth in 2013 and beyond, and the brand continues to benefit from higher pricing and creative consumer engagement.

Sauza, the #2 premium tequila in the world by volume, was up 10% for the year, as the brand benefited from underlying growth, and easy Q4 comparisons in Mexico due to the distributor transition-related destocking I mentioned earlier. The brand's performance included strong growth for its 100% agave, Sauza Blue expression and strong double-digit growth for super premium 3Gs. We're looking forward to broadening Sauza's appeal with the upcoming launch of a sparkling margarita ready-to-drink product that has tested very well with consumers.

Sales for Teacher's Scotch closed the year up 1%, lower than the brand's normalized run rate, as reduced fourth quarter sales in India more than offset strong growth in Brazil. Teacher's is a strong brand equity and an important strategic asset that will serve us very well as the Scotch category continues to drive a lot of growth in emerging markets.

Courvoisier delivered a second consecutive year of double-digit growth, up 12%. The brand maintained its market leadership in the U.K., delivered modest gains in the U.S. and provided the platform for fast growth in emerging markets like China and Russia.

Canadian Club delivered 6% growth on top of a 5% gain in the prior year. Continued RTD success in Australia, innovations such as the 5-liter keg format and the brand's new digital media campaign helped fuel Canadian Club's results.

Pinnacle Vodka grew 19% under our ownership over the last 7 months of 2012. A quick update on our progress on Pinnacle. On the top line, we've achieved strong sales growth even while navigating the disruption of various distributor transitions. We've introduced successful new products like Pumpkin Pie. And in Q4, we launched the brand's new national advertising campaign, backed by a doubling in brand investment. While Pinnacle comparable sales will last significant distributor inventory build in last year's Q1, the brand's last full quarter price were at sale, we feel very good about achieving our original acquisition target to drive double-digit growth for the brand in 2013, with improved returns as we leverage our distribution, innovation and brand-building capabilities.

Last week, we announced plans to consolidate bottling for the brand into our center of excellence in Frankfort, Kentucky in 2014. We anticipate that our acquisitions, led by Pinnacle, will deliver $0.10 of accretion in 2013 compared to the $0.05 we realized in 2012. As a reminder, at the time of the Pinnacle acquisition, we said we expected the transaction to be neutral in 2012 and $0.05 to $0.10 accretive in 2013. So we're tracking very well.

Sales for our Rising Star brands were also up 10% for the year. Skinnygirl, our largest Rising Star, grew 19% on the success of our extension of the brand into vodka, wine and more ready-to-serve options. We're pleased that our high-end whiskeys, Laphroaig, Knob Creek and Basil Hayden's all grew strong double-digits on top of the prior year double-digit growth. Hornitos gained momentum in Q4 as we began shipping the brand's new package, while Kilbeggan sales moderated in advance of a brand relaunch and new package in late Q1.

Full year sales for Local Jewels were off 1%, as growth for the Dekuyper cordials in the U.S. was offset by lower sales of our Local Jewels in Spain. Sales of our Value Creators were also lower by 1% for the year. Reflecting our vodka strategy of focusing on our Pinnacle Power Brand, we intend to report EFFEN and Pucker vodka as part of Value Creators going forward.

One final note on Value Creators. As Matt noted, yesterday, we completed the divestiture of a selection of economy Value Creator brands, representing about 5% of our total volume and about 1% of our total Beam sales. We believe we sold well. This divestiture reduces portfolio complexity and duplication, enables us to sharpen our focus on our fastest-growing and higher-profit Power Brands and Rising Stars and is expected to be neutral to EPS in 2013.

Now a few final items before I turn things back to Matt. Return on invested capital before charges/gains was 7% for 2012 and excluding intangibles was 23%. Our tax rate before charges/gains came in at 28.3% for the year, a touch above our target of 27.5% to 28%, principally due to market mix.

Turning to our balance sheet. Beam continued its track record of cash generation and delivered an earnings to free cash conversion rate of 87% for the year, ahead of what we expected. Working capital efficiency has helped offset our strategic investments and deliver upside to our target for the year. We also ended the year with a net debt-to-EBITDA ratio of 2.8x. That's better than our expectations of 3x.

Now I'll close things out with a few words on how we look at 2013. While we see headwinds including higher raw material costs and challenging comparisons in India as we reposition our business there, we anticipate benefiting from several favorable dynamics: the strength of the Bourbon category, our innovations and brand-building initiatives, strong growth in emerging markets, our efficiency and effectiveness agenda and accretion from our acquisitions. Incorporating these factors at this early stage, we're targeting for 2013 to outperform our market at the top line, grow operating income faster than sales and deliver growth in diluted earnings per share before charges/gains at a high single-digit rate against our 2012 base of $2.40 per share.

Let me take a moment to dive a little deeper on our assumptions through the P&L, moving from sales down through earnings per share. Starting at the top line, we anticipate our global market will grow once again in the range of 3%, driven largely by volume and mix rather than price. While we're targeting to grow comparable sales faster than that, continued outperformance at twice the rate of our market, as we said before, would represent upside. And even though we took the lead in taking targeted price increases in 2012 and we're now seeing more industry pricing coming through, at this early stage, we're not currently assuming material new pricing in 2013. But we'll continue to monitor the environment as the year progresses.

We anticipate innovation will continue to be a growth driver, and we'll focus a lot of attention in 2013 on sustainably growing successful new products we've already introduced, as well as on several exciting new innovations we have in our pipeline. We see good momentum for our businesses in emerging markets like Russia, China and Brazil. We also anticipate at current rates, foreign exchange will be a 1-point tailwind at the top line.

Moving to operating income. We will continue our fuel for growth agenda and aim to achieve the high end of our range of 1% to 2% annual savings in cost of goods sold and SG&A to mostly offset higher raw material costs.

We expect our net increase in raw material costs will likely be in the range of $35 million, in line with the increase we saw in 2012, impacted by bottling and selling Bourbon that was barreled when corn costs spiked 4 to 5 years ago. After a third consecutive year in which we boosted brand investments by double digits, our brand investment has reached what we believe is a highly competitive mid-teens level. Therefore, we'd expect BI to rise at a rate more in line with sales going forward, and we expect FX at current rates will benefit OI by approximately $5 million.

All in, including the benefit of our recent acquisitions, we expect to generate strong leverage at the operating income line in 2013.

Moving down to earnings per share. There are some below-the-line items worth noting. Interest expense is no longer a tailwind in 2013, as we annualized the benefits of the Fortune Brand separation and face the incremental financing cost of the Pinnacle acquisition. We'll see a modestly higher effective tax rate in the range of 28.5% due to market mix, and we continue to review our tax planning posture and opportunities. So while we expect to see operating leverage in 2013, we do not expect to see below-the-line leverage, given the factors I just mentioned.

Regarding our balance sheet, we expect Beam to continue with strong cash generation. We're targeting to generate free cash flow of approximately $300 million to $350 million, as we continue a healthy level of strategic investment.

Finally, regarding phasing, I'd remind you that here in Q1, we will face our most challenging comparison into the year as we cycle against our new product launches and route-to-market changes that help drive comparable sales up 13% in the year-ago quarter. We also anticipate some uneven impact across borders from higher raw material costs, with more impact in quarters 2 through 4 than in Q1.

So to sum things up, at this early stage, we expect to deliver growth with EPS before charges/gains in 2013 at a high single-digit rate. As the year progresses, we'll keep a watchful eye on our markets and the potential for slower growth in Western Europe and emerging economies that could impact trading conditions. At the same time, potential factors that could favorably impact our view, should they materialize, include better-than-anticipated growth in the Bourbon category, sustained significant improvement in the pricing environment and stronger-than-expected consumer pull-through of our innovation.

Now back to Matt for some closing comments.

Matthew John Shattock

Thank you, Bob. Well, as I outlined at the beginning of the call, we are delighted with our strong performance in our first full year as Beam. We're pleased that we presented this performance whilst making significant investments to further strengthen Beam's competitive position in the industry. And as a result, we do feel good about our prospects for outperformance in 2013.

Our confidence in our ability to grow on growth is rooted in our proven strategy. We'll continue to create famous brands to leverage our broad portfolio of premium brands, led by our core strength in Bourbon, our best-in-class capabilities and innovation and our expertise in last-stop beverages.

We'll continue to build winning markets as we leverage our strong #2 position in the U.S., our highly competitive positions in core developed markets like Australia and Germany and the upside opportunity in building on our growth platforms in rapidly expanding emerging markets. And we'll continue to fuel our growth through our aggressive efficiency and effectiveness agenda that provides the rocket fuel to accelerate sales and improve margins. And better still, we have a team of 3,400 passionate people aligned behind our strategy and a lengthening track record of strong stewards of capital. Together, we share a single focus to deliver sustainable, profitable long-term growth and maximize value for shareholders.

Bob and I would now be pleased to respond to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Dara Mohsenian with Morgan Stanley.

Dara W. Mohsenian - Morgan Stanley, Research Division

So your 2013 guidance doesn't assume material pricing. And I was a bit surprised to hear that, given the industry pricing environment, looks like it's improving here as you referenced. So a, can you just give us a review of what you're seeing from a competitive standpoint in the marketplace? And b, do you think there might be room to take additional pricing in 2013, particularly given your commentary that you're going to monitor the environment?

Matthew John Shattock

Thanks, Dara. Well, as you know, we looked at taking -- and we did take a lead in price increases last year in the U.S. And also, we're pleased about the fact that we did achieve sort of industry-leading price and mix amongst the major suppliers, if you look at this kind of data. As we said in our last conference call, as you know, we wanted to really read the holiday season before we evaluated additional opportunities. And certainly, the holidays did show good gradual improvement in the overall price environment. It ticked up a little bit from the last quarter we reported. It was up about 0.5% to 1% in the market. It's gone up to about 1% to 1.5%, and we've seen a sustaining of positive mix as well. So it's overall a good picture. I would say, however, that pricing does vary very much by category, by price point and by geography. And where pricing has gone up on average, not all the players have moved yet. So we take a very granular view of this. We regularly review our pricing at the local level, and we'll certainly evaluate targeted increases. But we don't want to prejudge that conclusion to your question. And I think the one thing I would say overall is if you look at 2012 and now with broader movement in the market, the first time we've seen the consumer being faced with broader price increases since the downturn in 2008. So let's step back and take a good look at that. But we'll certainly review opportunities and we'll certainly take them further. In the meantime, the key leader of our revenue realization last year will continue to be the same, our focus on premium brands, our focus on accretive innovation. So we should look to mix to be a good driver of revenue increase for us in the coming year.

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay. And could you give us a little bit of postmortem in terms of the consumer demand elasticity you saw from the higher pricing in 2012, where that came in versus your expectations and how that might inform your pricing focus going forward?

Matthew John Shattock

Yes. Overall, we do not see our brands as being particularly elastic. If you look at markets like North America or Europe, where we saw the majority of our pricing, we feel very good about the continued momentum of our portfolio. We've sustained our outperformance of our markets in those geographies. And if you look at really the core focus of our investments and where we took price, take Bourbon, for example, where Maker's Mark and Jim Beam led the pricing, we've seen good continued performance. I think one area that you might be referring to and see is in some of the track channels, that's about 15% of the market, what the analysts looked at in the Nielsen database. And certainly there, we gave up a bit of volume share in some of our Value Creator vodka brands and the like, and that's because we managed those brands with value, but certainly, we did that very deliberately. But the core of our portfolio, the strategic assets where we're building brands, we're investing in equity and innovation, we feel good about sustained momentum and the prices we took.

Robert F. Probst

Dara, I'd add that for our financial results in '12, we had about 1 point of price, which was in line with what we expected. And then, as I said, we're not assuming new pricing in '13, and we'll certainly see the carryover benefit of the pricing we took in '12. And as Matt said, if there is opportunity for pricing in '13, that would be an upside to the guidance that we gave.

Operator

Your next question comes from the line of Bill Chappell with SunTrust.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Just wanted to dig a little bit more into Pinnacle. I think the $0.10 is in line -- accretion is in line with what you originally said. I thought you would see some incremental benefits from better financing and just kind of give me an update on what you're expecting on top line growth and on that 20% synergies, if we're still on target for that.

Robert F. Probst

Yes Bill, Bob here. We're tracking well across every dimension, I would say. If I started with the top line, we posted 19% under our ownership. And as we look forward in '13, we're reinforcing that we're confident in double-digits, and that was always the view of the acquisition case. So we're feeling good and on track from a top line perspective. In terms of the synergies, the 20% plus hard synergies that we quoted on the deal, we're quite pleased with our progress there. And indeed, the $0.05 that we delivered in 2012 against Pinnacle was in part going forward some of those synergies, which we're very pleased with. And as you pointed out, part of that upside was the financing as well. So all in, $0.05 versus neutral, initially laid out there. We feel good about an additional $0.05, because at $0.10, therefore, in '13, says double-digit growth on the top line, continued investments and brand investment behind the brand as we're driving distribution brand-building and the equity behind the brand, I think good accretion. So we feel good across the P&L with the results we delivered and what we'll deliver in '13.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then just looking at kind of the new product launches, I mean I know you don't give specific quarterly guidance. But can you give us an idea on just kind of the cadence? Is there any one quarter where we're going to see a bigger ship-in than others?

Matthew John Shattock

Yes, Bill. It's Matt. A couple of thoughts there. I think the point that I'd reinforce from our prepared remarks is that one of our first priorities this year in innovation will be to reinforce and keep driving some of the great launches we've seen in the past couple of years, I mean, with the likes of that, the success there. We've now rolled out brands like Red Stag at 30 markets, Devil's Cut is in 20. So I think sustaining that growth and putting focus on that will be very important to us. Whereas last year, obviously, you saw surge of innovations, particularly in the first quarter, as Bob's comments on phasing. We will be augmenting that with some exciting new innovations. And certainly, one category where we'll put a bit more focus this year would be tequila. We've been asked a couple of exciting innovations really there for the first time in a number of years under the Sauza brand, which is -- build it's positioning very much around the margarita [indiscernible], perhaps we're going to launch a ready-to-serve sparkling margarita. Hornitos, as part of its big relaunch, we'll introduce a lamb chop [ph] product. So I'd say a combination of really doubling down on the great success we had so far and then bringing new news to the categories, but probably not the same high watermark that you saw in terms of initial launches that we saw a year ago in the first quarter.

Operator

Your next question comes from the line of Bryan Spillane with Bank of America.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

Just a question about India -- or 2 questions about India. I guess the first is just could you give us a little bit more color in terms of what the actual changes you've made to your business there or to the business model there and why it would've caused the business to decline and then kind of what would cause it to come back? Just not very clear in terms of what actual changes you've made.

Matthew John Shattock

Sure, Bryan. Let me step back and give you a bit of color on that. As we said, as part of our ongoing sort of very robust compliance and all those function processes, we identified some conduct in India we want to take a closer look at. So we conducted a follow-up investigation. And as a result -- and really, out of an abundance of caution, we moved pretty immediately to stop a number of activities that gave us concern. As a result, we've implemented some corrective actions, new procedures, processes and protocols. And we're now at that point where we're really ramping up our repositioning program to restore our place in the market. So because our review isn't yet complete, I don't want to go into more detail in that at this stage. But what I will say is obviously we've got very high standards. And where we find that we've got concerns about them, we will move very aggressively to ensure that the business is being done the right way. As Bob said, our long-term belief in this market is undiminished, and we certainly see that it'll be a bit of a challenge in terms of comparables going through the first 3 quarters. But as we get to Q4, we will see things improving in terms of comparisons in India.

Bryan D. Spillane - BofA Merrill Lynch, Research Division

And then my impression is that the guidance you've provided imply or incorporates some cost associated with that. So just how do you feel about your confidence level in that the size of that cost you feel like you're on top of and won't be surprised that it ends up being a bigger number than what we've got in our forecast already?

Matthew John Shattock

Well, obviously, that's in 2 dimensions. I mean both sides, the impact of the business in the fourth quarter, mix that overall, and it's about 2% of our global sales and that's none of our profit. In terms of the cost of the activities we're undertaking, clearly, it's difficult to put a precise number on that because that's still ongoing. And we've taken some charges through in advance, and we'll keep you updated on that as the year progresses.

Robert F. Probst

I just wanted to add that we did take charges in the fourth quarter in the Beam P&L and obviously the early stage here, it's very premature to speculate on final costs for the matter, so I wouldn't attempt to do so.

Operator

Your next question comes from the line of Judy Hong with Goldman Sachs.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

So on the phasing of the year and you pulled out the first quarter, the challenging circumstances [ph]. Is there a way to kind of just give us some more quantification of that because if I look at -- obviously, you've got a tough comp in the 13% last year. And then you've also talked about the Pinnacle having some inventory that you'd be lapping. So is it unrealistic to think that the comps sales could actually be down in Q1?

Robert F. Probst

Judy, well, obviously, it's a tough comp as you highlighted. And we had a very strong quarter last year across all 3 segments on the top line, including some pipeline for innovation, some route-to-market challenges -- benefits we saw last year that we have to lap. And so I would say we should expect growth in the top line, but it's going to be a tough comp. And as we also highlighted just in terms of the choppiness of costs, there's going to be more of a focus of our $35 million of cost increases that we expect next year and really in quarters 2 through 4. So as we always say in this business, never look at 1 quarter. It is always very choppy. But we expect to see a reasonable quarter in the first quarter.

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Okay. And then just in terms of innovations, particularly in the flavor side, so obviously you've been a leader in expanding into flavors. It sounds like maybe 2013, you want to reinforce the existing innovation as opposed to really taking some of that flavors into other -- into more flavors. So maybe you can just give us your perspective on kind of where we are in that sort of flavor evolution. Is there still, in your view, significant headway or growth in sort of these flavor line extensions? Do you think that incremental flavors may be not necessarily giving you the lift that you've seen in the prior [indiscernible]?

Matthew John Shattock

Well, Judy, we're certainly very encouraged by the performance of flavors we're seeing. And I think you've got to look at that on a segment-by-segment basis. In Bourbon, we continue to see very robust growth. And we've expanded, for example, the Red Stag platform in North America, and we've seen continued good growth there. We're seeing the rollout of flavors around the world in big Bourbon markets like Australia and Germany. So we do see continued growth there. Our idea though is that we can continue to -- think about continued growth by using those brands to attract more consumers and that we've done a good job with that. We've talked before about the fact that we brought, for example, more females into the Bourbon category. If you look at a big segment like vodka, obviously, an important segment for us, 1 in 3 spirits sold in North America; and now, it's Pinnacle. Flavor is driving all of the growth in that market and it continues to do so. I think the challenge there is to continue to be on the front end of those trends, to bring interesting, relevant and frankly, very good tasting products to consumers. We did that, for example, in Q4 with the Pumpkin Pie launch. That's gone very well for us. And you can expect to see us continue being at the leadership there because consumers are now looking to Pinnacle as the go-to brand of flavors in the marketplace. So I would say that the trend towards our flavor has been a pretty steady secular trend in total market for a number of years. And I think it's a trend which will continue to drive a lot of growth, and we'll tap into it going forward.

Operator

Your next question comes from the line of Ian Shackleton with Nomura.

Ian Shackleton - Nomura Securities Co. Ltd., Research Division

I had a few questions, particularly around Spain. I'm not sure you really quantified what your performance in Spain was in Q4. Could you tell us what happened there? And I was interested particularly at how much of that was destocking versus consumer offtake declining. How do you see that progressing in 2013? And follow-up question was really around the $60 million write, of which brand was that in Spain that was written down?

Robert F. Probst

Ian, it's Bob here. The story of Spain in the quarter is really is similar to that in the year for 2012, which is a very tough market, obviously. We've seen it trending down sort of mid- to high-single-digits, bouncing around in that zone. And indeed, that's where we saw it in the fourth quarter. Our business against that has been gaining share, and so we don't quote particular growth rates. But against that sort of market, we have been winning, and particularly against Larios and DYC, our 2 Local Jewels there. As we look forward to 2013, we expect actually more of the same. We don't see any quick turnaround in that market nor do we expect it to trend any worse. Obviously, it's one market we continue to keep a close eye on, as I think about recent opportunities. But it's really same as we saw in '12 and '13 is the expectation. And in terms of the impairment question, I don't think we break out which particular brand, but there are only 2 so...

Matthew John Shattock

Ian, the other comment I'd give you just as a reference plaintiff [ph] that if you look at our exposure in terms of [indiscernible] and Greece and Spain, it makes less than 5% of our business. It's not a bigger part of the world.

Operator

Your next question comes from the line of Vivian Azer with Citi.

Vivien Azer - Citigroup Inc, Research Division

Just a follow-up on Spain and then Europe more broadly. One of your key competitors earlier this week noted some significant inventory destocking in Spain. Was that in part reflected in the weakness? Or could you give us an update on your inventory levels in that market?

Matthew John Shattock

We feel good about our position in Spain. There's no particular movement in inventory. We managed that very tightly, and we're pretty confident that our sales performance reflected the consumption in the market. It's a challenging market. But I will say that one of our advantages in Spain is the fact that we've got these Local Jewel brands, which are increasing relevance. They've got great value propositions, and I'm immensely proud of our team in Spain. They have gained share, and they've really done a great creative job of maintaining the relevance of those brands in what is obviously a tough overall market environment.

Vivien Azer - Citigroup Inc, Research Division

Understood. And then as we look out to 2013, to me, your outlook for Western Europe definitely sounds a bit cautious. And I'm curious whether that reflects the very kind of mixed bag that you see from a macro perspective across the various markets in the region? Or are you experiencing any heightened competitive activity?

Matthew John Shattock

Well, I think the great thing about our EMEA business -- again, as I said, we were very pleased with our performance. We outperformed last year, and we intend to continue to do so. And I think it's based upon 2 factors. One, just a very competent team who are doing a great job and seizing upon the assets, as Bob commented on, like Bourbon and Jim Beam across the region. The other is the portfolio of countries as well as brands. Obviously, the further West you go, they're challenged. But as you come forward, at least towards markets like Germany, that overall market is growing low- to mid-single digit. But our performance there is way ahead of that, and that's because of the drive behind Beam and the focus on our Bourbon portfolio. And clearly, Central and Eastern Europe look very positive, as is Russia. So when you put that into one melting pot, we continue to see it's good performance and outperformance from our team in EMEA.

Vivien Azer - Citigroup Inc, Research Division

Perfect. And one last question on your overall kind of portfolio mix, if you will. You see a lot of evolution, I think, not only because of M&A, but outside its growth in Bourbon. So as you look at your portfolio today, are there any glaring wide-space opportunities, either from a category or geography perspective that you'd like to address in 2013?

Matthew John Shattock

No, Vivien, I think we feel good about where we are. And as I said in my comments, if you think about our portfolio sort of globally, obviously, we've got a big focus in our Power Brands and Rising Stars. Our foundation is still in Bourbon, which is the bedrock of our business, continues to show good growth momentum, and we're very excited about that. We're delighted about the fact that we have a strong competitive position in having brands that are relevant to local and emerging markets' taste. So we've got tequila for Mexico, we've got cognac for China, and we've got Scotch for a lot of the Southern Hemisphere markets, the likes of Brazil. And obviously, this new segment, as we're calling it emerging in terms of lifestyle beverages and the trends there towards flavor, convenience, premiumisation and brands like Pinnacle and Skinny give us a real opportunity to create new factors of growth in some of our established and core markets. So we like our portfolio, and we think the focus that we're going to provide to it going forward is the right one.

Operator

Your next question comes from the line of Timothy Ramey with D.A. Davidson.

Timothy S. Ramey - D.A. Davidson & Co., Research Division

You mentioned some of the changes in routes-to-market to China, and I wondered if you might elaborate just a little bit more on that.

Matthew John Shattock

Yes, Tim. We were previously in a joint venture in China. And we and our partners took a look at it and realized there are lots of good reasons in terms of geographic and then to make sure the capabilities and channels we wanted to address that we would separate and go our own ways. We've gone to an important model. We have a new distributor in China who is very competent and doing a really good job. And so that route-to-market shift has been very helpful. We've done I think -- also done a really good job driving the brand. Obviously, Cognac is a key driver in China, as we said earlier. And the Courvoisier brand is in good [ph] health in that market. And in fact, we followed that up at the end of last year with big a launch of a new concept called Courvoisier Emperor. So it was really a combination of really making sure we have the right route-to-market, the right operating expense model there, and then we will put into that model a good brand-building activity. And our team there has done a very good job for us.

Operator

Your next question comes from the line of Ann Gurkin with Davenport.

Ann H. Gurkin - Davenport & Company, LLC, Research Division

Just want to follow up your outlook for the Bourbon category. Given the strong performance we've seen in '12, is there any concern that we'll see deceleration at all in that category, either in the U.S. or outside of the U.S.?

Matthew John Shattock

I think as we said before, it will be difficult to maintain the sort of double-digit growth that we've seen in the last couple of years. But we do believe Bourbon can continue to outperform the overall category, both in North America and around the world. And the signs and momentum we see in this business have indicated that. And I think if we keep doing what we're doing, which is focusing on building brands, premiumisation is a very important trend, which is creating a lot of value and innovation. There's good prospects both in North America and around the world. So our confidence remains good.

Operator

Your next question comes from the line of John Faucher with JPMorgan.

John A. Faucher - JP Morgan Chase & Co, Research Division

Just a follow-up to better understand the dynamics of flavors. If you look at flavored vodka, you talked about Pumpkin Pie having a good quarter, it seems as though there's a little more churn on the vodka side. And can you talk about sort of the sustainability of the individual vodka flavors over time versus what you see is the ability to sustain the individual Bourbon flavors, the Red Stag, et cetera? How should we be thinking about those categories differently in terms of long-term flavor development?

Matthew John Shattock

Sure. I think that you compare and contrast those 2 categories in a number of ways. Firstly, vodka is a very big category. And as I said, it's 1 in 3 spirits sold. So there is a lot of room for variety and innovation there. And certainly, I do think the continuous flow of innovations in terms of new flavors and new concepts are what the consumer is looking for. Now that doesn't mean to say that we won't have bedrock flavors. I mean, whipped cream has probably come off its peak a little bit for Pinnacle, but it still remains the #1 flavored vodka in North America, and we're very proud of that fact. But we'll keep bringing new ideas. And I think the consumer expects us to do that, and it's a very efficient model. It's quite easy for us to develop and introduce flavors and keep the rotations and the cash flow management aspects going. I think in Bourbon, we'll continue to focus on the core assets we have there. Red Stag was launched in 2009. We're very pleased with its sustained performance, and we'll keep driving that, as I said earlier. We've launched Honey in Europe and down in Australia. The early signs there are very strong. So I think you'll see more of a rifle shot there. There's plenty of scope for new ideas in that market. But on the whole, we do believe that it's a great opportunity. I think the more fundamental point that Bourbon does sort of sit much more fundamentally as a whiskey category. It's probably about 5% of the overall Bourbon market in flavors; whereas in vodka, it's about 20%; in rum, it's even higher, as much as 50%. So I do think that you're affected with different dynamics in those data.

Operator

Your next question comes from the line of Ken Perkins with Morningstar.

Kenneth Perkins - Morningstar Inc., Research Division

I'm just curious if you can speak a little bit about the increased advertising spend. I know it went up this year in North America behind some of your product launches. So can you just help us to frame your outlook for the brand investment in 2013 in terms of what categories and regions you're looking to invest in? And how should we think about the phasing throughout the year?

Robert F. Probst

Sure. Well, I want to say first is that the incremental spend we had in the third consecutive year of double-digit brand investment has really been focused behind Power Brands and Rising Stars. And within that, very much against the Bourbon portfolio, as you would expect, in driving the growth of that category. We expect certainly for that to continue. Now within that, you see Maker's Mark, Beam and some of our small batch collection, the higher-end bourbons where we see great opportunity. At the same time, Pinnacle, of course, is going to be an important part of that investment, as we noted earlier, driving that growth, fueling that growth with the appropriate BI. And then finally, rounding that out, the Rising Stars, we'll continue to invest to make them the Power Brands of the future. So from a brand perspective, we'll continue driving the Power Brands and Rising Stars. And I think from a type of spend and focus against that, we're very much been focused against the consumer TV, digital media, social media really as the means to drive the effectiveness of that spend. And you'll see more of that coming. In aggregate, in '13, I noted that we expect BI to grow more in line with sales throughout the year. Obviously, there will be ups and downs during the year. But I think a more consistent growth rate, given that sort of mid-teens reinvestment rate that we now reached, I think, makes sense.

Kenneth Perkins - Morningstar Inc., Research Division

Okay, great. And then is a majority of that going towards North America again?

Robert F. Probst

You'll certainly see that. But as Matt noted, it's investing, for example, behind our great brands in Europe. In Bourbon in Germany, for example, continues to be another great area, as well as the emerging markets. So it's not solely focused in North America, but we could either be very much focused behind those Power Brands and Rising Stars in our key geographies.

Operator

Your next question comes from the line of Greg Hessler with Bank of America.

Anthony Garcia

This is Anthony Garcia calling in for Greg Hessler. It looks like you had a $218 million note that matured in late January. How did you address that? And are there any plans to tap the debt capital markets this year? And then also, can you talk a little bit about how you're thinking about your ideal capital structure, given the focus of investing internal and external growth of your M&A?

Robert F. Probst

Sure. You're right, we did have a maturing bond that came due early this week. We paid that out largely with cash on our balance sheet, so effectively, it reduced our debt level, which really speaks to the strong cash generation that we have. And in terms of what is our ideal capital structure, I'd come back to what we talked about in terms of our use of cash. And we've always said that we think it's solid investment grade long-term target makes a lot of sense. Why? Because it gives us that financial flexibility to be proactive in the marketplace as well as the most efficient cost of capital. So that certainly remains our target. I think the de-leveraging we saw through the reduction of this bond really puts us in that position, in my mind, of being a strong balance sheet.

Operator

And we have no further questions in queue. I turn the call back over to Mr. Shattock for any closing comments.

Matthew John Shattock

Thank you again for joining us. We look forward to speaking to you again in 3 months' time to review our first quarter results. Thank you, everybody.

Operator

Thank you for your participation in today's conference call. This call will be available for replay beginning today at 1:00 p.m. Eastern Daylight Time through February 5 at 11:59 p.m. Eastern Daylight Time. The conference ID number for replay is 86977608. The number for the replay is [phone] or [phone]. Thanks again for your participation. You may now disconnect.