NORM WESLEY: “MOST CHALLENGING QUARTER” IS OVER
Fortune’s wine and spirits business helped make up for an overall sales loss due to its home and hardware section. But since we’re in the alcohol business, let’s zone in on Beam Global. All in all it was a profitable quarter for wine and spirits although down a little more than expected on Wall Street. But as chief Norm Wesley repeatedly mentioned, the first quarter is not a big money maker in the alcohol beverage business, which managed to grow 8.6% in net sales (if you don’t include a few one time costs).
“Fortune brands will progressively get better and our most challenging quarter of the year is now behind us,” said Norm. “Solid profit growth for our spirits and wine brands partly offset lower results from our home product brands."
“In spirits and wine, our largest profit contributor, we drove mid-single digit growth in both global depletion case volumes and operating income on strong consumer demand for our premium and super-premium brands.”
So, since wine and spirits were responsible for much of Fortune’s growth, the company plans to work on its “ability to grow our major premium brands” in 2007. Are you starting to see a trend? All the wine and spirits companies are aiming to grow their luxury portfolio.
THE YEAR OF BOURBON. As president and coo Bruce Carbonari put it, “With the successful integration of the major acquisition behind and a high performance organization in place, we’re now focused on building brands people want to talk about.”
How is the company going to manage that? By spending more money of course. Beam plans to increase its wine and spirits spend by double digits this year. This includes the launch of four new Jim Beam TV ads, and a 5 year, $70 million investment in Jim Beam and Maker’s Mark. The company also plans to leverage Sauza for its largest Cinco de Mayo presence ever.
In addition, Bruce declared 2007 “the year of bourbon.” He reiterated that bourbon is a hot market and that Beam “has the all-star team of bourbons, especially high-end bourbons which grew 6% in the U.S. last year.”
ABSOLUT STANDING. Before the conference call really got to a head start, Norm went ahead and made some comments on the privatization of V&S and Absolut.
“Since 2001 we’ve had a partnership with V&S on three levels: distribution in the U.S., the Maxxium joint-venture, and a 10% equity stake that V&S has in our wine and spirits business.”
“As a business partner with V&S we have a natural interest in its privatization,” continued Norm. “Our close relationship has further built our respective brands.”
“We will obviously take a close look on the opportunity to build our relationship with V&S if and when the Swedish government completes the privatization process.”
When asked to comment further on V&S during the question and answer portion, Norm said Beam’s relationship with the Swedish company “was a very attractive deal going in so there would be a short term hit. We’re obviously in a much better position than would have been before we did the Allied brands deal, so we would work our way through it and it’s not something right now that we’re losing sleep over.”
ONE TIME FACTORS HURT SALES. Craig Omtvedt, cfo, reported that a decline in reported sales were the reflection of a few onetime factors:
1. Last year’s distribution transition in Spain
2. Transitional bottling contract with Pernod Ricard
3. Challenging comparisons for shipments in the US due to the pipeline filling with new distributors
According to Craig, net sales for spirits and wine would have been up low-single digits if it hadn’t been for the one time costs. But as he pointed out, case volume was quite a bit better than that, up a “very healthy” mid-single digit rate. In addition, premium and super-premium volumes grew twice as fast as Beam’s national and regional brand growth.
International global volumes for Jim Beam and Maker’s Mark are up mid-single digits ytd, while Canadian Club has high single-digit volume growth. Sauza, Courvoisier and Knob Creek exemplify double digit volume growth. Teacher’s Scotch had a double digit volume growth ytd, mainly due to a surge of popularity in India.
As for wine brands, Geyser Peak, Wild Horse and Clos Du Bois grew at the mid-single digit rate.
“We feel excellent momentum and spirits and wine and feel well positioned to deliver strong results,” said Craig. “We believe we’re on track to achieve our 2007 target of the mid to high single digit range for wine and spirits, which includes the double digit spend increase that Norm mentioned earlier.”
Some industry insiders, however, warn that the spirits category is headed for a brick wall. When asked whether he thought the U.S. spirits industry was going through a marginal slowdown, Norm replied: “On the depletion side, this is the softest quarter in spirits so I think it’s hard to read the market and say there’s an appreciable change in the market… I’ve heard some competitors are commenting on that, but I can tell you that our organization has not told us that they’ve seen a slowdown in the market.”
One thing that is affecting Beam, according to Craig, is rising corn costs. “Obviously the most important item for us right now is corn. We’re seeing the price of corn go up but that’s a manageable item for us. We obviously are aging the spirits for 4 years, so the impact is four years out.”
“Fortune brands will progressively get better and our most challenging quarter of the year is now behind us,” said Norm. “Solid profit growth for our spirits and wine brands partly offset lower results from our home product brands."
“In spirits and wine, our largest profit contributor, we drove mid-single digit growth in both global depletion case volumes and operating income on strong consumer demand for our premium and super-premium brands.”
So, since wine and spirits were responsible for much of Fortune’s growth, the company plans to work on its “ability to grow our major premium brands” in 2007. Are you starting to see a trend? All the wine and spirits companies are aiming to grow their luxury portfolio.
THE YEAR OF BOURBON. As president and coo Bruce Carbonari put it, “With the successful integration of the major acquisition behind and a high performance organization in place, we’re now focused on building brands people want to talk about.”
How is the company going to manage that? By spending more money of course. Beam plans to increase its wine and spirits spend by double digits this year. This includes the launch of four new Jim Beam TV ads, and a 5 year, $70 million investment in Jim Beam and Maker’s Mark. The company also plans to leverage Sauza for its largest Cinco de Mayo presence ever.
In addition, Bruce declared 2007 “the year of bourbon.” He reiterated that bourbon is a hot market and that Beam “has the all-star team of bourbons, especially high-end bourbons which grew 6% in the U.S. last year.”
ABSOLUT STANDING. Before the conference call really got to a head start, Norm went ahead and made some comments on the privatization of V&S and Absolut.
“Since 2001 we’ve had a partnership with V&S on three levels: distribution in the U.S., the Maxxium joint-venture, and a 10% equity stake that V&S has in our wine and spirits business.”
“As a business partner with V&S we have a natural interest in its privatization,” continued Norm. “Our close relationship has further built our respective brands.”
“We will obviously take a close look on the opportunity to build our relationship with V&S if and when the Swedish government completes the privatization process.”
When asked to comment further on V&S during the question and answer portion, Norm said Beam’s relationship with the Swedish company “was a very attractive deal going in so there would be a short term hit. We’re obviously in a much better position than would have been before we did the Allied brands deal, so we would work our way through it and it’s not something right now that we’re losing sleep over.”
ONE TIME FACTORS HURT SALES. Craig Omtvedt, cfo, reported that a decline in reported sales were the reflection of a few onetime factors:
1. Last year’s distribution transition in Spain
2. Transitional bottling contract with Pernod Ricard
3. Challenging comparisons for shipments in the US due to the pipeline filling with new distributors
According to Craig, net sales for spirits and wine would have been up low-single digits if it hadn’t been for the one time costs. But as he pointed out, case volume was quite a bit better than that, up a “very healthy” mid-single digit rate. In addition, premium and super-premium volumes grew twice as fast as Beam’s national and regional brand growth.
International global volumes for Jim Beam and Maker’s Mark are up mid-single digits ytd, while Canadian Club has high single-digit volume growth. Sauza, Courvoisier and Knob Creek exemplify double digit volume growth. Teacher’s Scotch had a double digit volume growth ytd, mainly due to a surge of popularity in India.
As for wine brands, Geyser Peak, Wild Horse and Clos Du Bois grew at the mid-single digit rate.
“We feel excellent momentum and spirits and wine and feel well positioned to deliver strong results,” said Craig. “We believe we’re on track to achieve our 2007 target of the mid to high single digit range for wine and spirits, which includes the double digit spend increase that Norm mentioned earlier.”
Some industry insiders, however, warn that the spirits category is headed for a brick wall. When asked whether he thought the U.S. spirits industry was going through a marginal slowdown, Norm replied: “On the depletion side, this is the softest quarter in spirits so I think it’s hard to read the market and say there’s an appreciable change in the market… I’ve heard some competitors are commenting on that, but I can tell you that our organization has not told us that they’ve seen a slowdown in the market.”
One thing that is affecting Beam, according to Craig, is rising corn costs. “Obviously the most important item for us right now is corn. We’re seeing the price of corn go up but that’s a manageable item for us. We obviously are aging the spirits for 4 years, so the impact is four years out.”
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