Beam Management Discusses Q2 2012 Results - Earnings Call Transcript

Beam (BEAM)

Q2 2012 Earnings Call

August 02, 2012 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

Bryan D. Spillane - BofA Merrill Lynch, Research Division

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

Dara W. Mohsenian - Morgan Stanley, Research Division

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

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

Vivien Azer - Citigroup Inc, Research Division

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

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

Kenneth Perkins - Morningstar Inc., Research Division

Presentation

Operator

Good morning. My name is Matthew, and I will be your conference call operator today. At this time, I'd like to welcome everyone to the Beam's Second Quarter Earnings Conference Call. [Operator Instructions] Thank you.

Now I'd 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, Matthew.

Good morning. Bob Probst and I would like to welcome you to our discussion of Beam's 2012 second quarter 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 actual 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 on our news release or in the supplemental information linked to the Webcasts and Presentations page on our website.

There are 3 key messages we want to leave with you today. First, we have continued to execute our growth strategy successfully and it's delivering results ahead of our expectations in the first half of 2012. Consistent with our long-term targets that we communicated, we are growing sales faster than our market, growing OI faster than sales and EPS faster yet. These results are being driven by our Power Brands in our priority categories and markets where our performance is being enhanced by record levels of innovation and favorable price and product mix, and our synergy-driven bolt-on acquisitions are delivering incremental growth from fast-growing emerging categories.

Second, we look forward to the second half with confidence. We see resilience in our global spirits market. Uncertainty in international economies is being offset by strength in our heartland U.S. spirits market and with continued global growth in bourbon. So while we face some tough comparisons particularly in Q3, we expect the underlying strength of our core business augmented by our acquisitions will result in continued marketplace outperformance. As a result, we are raising our EPS growth target range for this year to a low double-digit rate.

Third, we are stepping up strategic investments to further enhance our prospects for long-term profitable growth. We will upgrade marketing investment in the second half behind our most exciting brands and innovations, and as always, we will do so in a disciplined returns-oriented fashion. In addition, we are accelerating investment in the capacity and liquid required to support future growth of our aged spirits particularly for our bourbon, scotch and cognac brands. As a result and despite the inevitable challenge of lapping prior year success, we feel good about our prospects to sustain marketplace outperformance in 2013 and beyond.

Now Bob will unpack our results in a few minutes, but I'd like to touch on a few highlights of our performance and our strategy and action. In the second quarter, Beam continued its momentum with results that exceeded our expectations. Comparable sales grew 5% as our portfolio continued to outperform our global market even as we lapped a very strong year-ago quarter that was boosted by the timing of new product launches. Our strong top line results were driven by our Power Brands and Rising Stars led by Jim Beam, Maker's Mark, Skinnygirl and successful innovations across our portfolio that improved our product mix.

In the quarter, profits again grew faster than sales and earnings per share grew at a solid double-digit rate, up 16% before charges/gains, benefiting from volume growth, targeted price increases and below-the-line items that Bob will discuss later. We're encouraged by several dynamics that benefited Beam in the quarter, including record quarterly sales in new products, impactful brand activation in markets around the world and strong worldwide demand for bourbon. The Pinnacle Vodka acquisition is also off to a good start.

As I said during my opening comments, we're very pleased with Beam's performance through the first half of the year. Year-to-date, our net sales were up 8% on a comparable basis, ahead of our expectations, with about 1/3 of that growth coming from new product innovation. And diluted EPS before charges/gains is up 23% through the first half.

Now we aim to outperform our market in a balanced, sustainable way over the long term, targeting to achieve 50% of our growth from our Power Brands and Rising Stars in core markets, 25% of our growth from innovations and 25% from emerging markets. And we're tracking very well against those targets this year by executing our effective 3-point growth strategy: Creating Famous Brands, Building Winning Markets and Fueling Our Growth.

Our Creating Famous Brands strategy is fueled by 2 strategic growth drivers: impactful brand communication and activation and cutting-edge innovation the builds equity and profit back to the core brand. As a result, we're driving double-digit growth for our Power Brands and Rising Stars. Notably, that include strong growth for our industry-leading bourbon portfolio which start to sustain growth for our core Jim Beam White product and accelerate up the price ladder, delivering favorable mix but fueling growth with effective and targeted communication, including new television advertising for Devil's Cut and for our expanded Red Stag line in North America. We're extending our bourbon flavor leadership with new products, including Jim Beam Honey in key international markets and Jim Beam Lime Splash RTD in Germany. And with sustained consumer engagement, Maker's Mark continues to generate very strong demand even as we take price increases.

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