Beam: Absolut Not a Must Have Brand
How is the economy affecting Fortune Brands’ spirits portfolio? That’s the million dollar question. Most of the spirits companies (other than Brown-Forman) have been reluctant to admit that the U.S. economy has taken much of a toll. The general consensus is that consumers view spirits as an “affordable luxury.” Sure, there might be a slowdown in value spirits brands, but premium and super-premiums continue to grow. In an age of premiumization and trading up, spirits companies are generally more concerned with their premium and up brands anyways. Most spirits companies also seem to think they will have no problem bouncing back from a slowdown and that the dawning recession is merely temporary. Declines in the on-premise are perhaps the biggest thorn for distillers, but most claim it’s not a significant change.
“What we have seen a little bit is a little less consumption at bars and restaurants and more people buying at their local liquor store, but it's not that significant,” Fortune ceo Bruce Carbonari told WSJ earlier this month.
In the first quarter, spirits sales were flat in the U.S., but Fortune says some of that was a result of larger-than-usual seasonal reductions in distributor inventories.
"While our reported spirits sales were relatively flat, shipments of spirits were adversely impacted in the U.S. by larger-than-usual seasonal reductions in distributor inventories that don't reflect the health of our brands in the marketplace," Carbonari said in a statment. "Had distributor inventory movements been consistent with the prior year, our worldwide spirits sales would have been solidly higher.”
Spirits sales increased at the premium end of the portfolio, reflecting favorable mix shift and Fortune’s continued focus on growing premiums. On a depletions basis, Fortune’s global premium brands grew in the U.S. and demonstrated strong growth in the U.K., Spain and Germany, as well as in Russia, India and China.
Fortune expects U.S. spirits shipments to bounce back in the months ahead. However, given the uncertain U.S. economic environment, Fortune is narrowing its full-year target range. It is now targeting diluted EPS before charges/gains to be in the range of flat to down at a high-single-digit rate. That's versus $5.06 for 2007.
THE NUMBERS GAME. In the smallest seasonal quarter for the company, net sales were up high single digits in the U.S., reflecting large seasonal reductions in distributor inventories. Depletions were higher in the U.S. for key premium brands, said the company.
First quarter depletions for Jim Beam were off in the first quarter, but Fortune is still expecting another strong year for Beam. The next generation of Jim Beam’s market campaign will rollout in the second quarter.
Sauza had lower shipments overall in the quarter due to inventory movements and tough comps. Depletions were strong in the U.S., however, and super-premium Sauza Hornitos continued to see strong growth.
Courvoisier increased double digit net sales on strong increases in the U.S. Maker’s Mark also experienced strong depletions overall.
WEAKENING ECONOMY. There was a lot of economy talk in today’s conference call. Overall, Fortune maintains that the economy has not had a large impact on spirits sales, although it has taken a toll (albeit it small) on value brands and the on-premise. Florida and California in particular have experienced a slowdown.
“We have seen no significant changes in the U.S. market...we’ve seen some change on-premise versus off-premise...geographic slowdowns correlates to the housing market, which we are seeing most heavily in Florida and California, especially on-premise,” said Carbonari.
“We have not seen the softening U.S. economy have a meaningful impact on total consumer demand...we benefit from our strong premium position,” cfo Craig Omtvedt.
“We had a good Christmas season...we have not seen trading down. The premium brands grow more than the value side and we’ve seen this trend for awhile now. The cocktail is still an affordable luxury and people aren’t willing to give that up. We’ve seen very little trade down at this point,” said Carbonari.
INVENTORY REDUCTION. “Seasonal inventory comes down after the holiday season, at the end of the year...it was further down then we normally would have expected but that’s all it is...the depletions are still strong,” said Carbonari with regards to the inventory reduction.
ABSOLUT. Carbonari mentioned the company is “very comfortable with the outcome” of the V&S deal. Although Fortune believes Absolut would have been a good fit for the company, the final price was too high and would not bring good returns for shareholders. Instead, Fortune said it would focus on building premium spirits brands and repurchasing shares.
Carbonari reiterated that Fortune’s U.S. distribution deal with Vin & Sprit has significant protection until 2012. Pernod has also assured Maxxium that V&S will remain in the J-V for two more years.
Without Absolut, all is not lost. Carbonari reminded listeners that Fortune is the fourth largest spirits company in the world; doing excellent in the U.S.; and has leading positions in bourbon, tequila, cognac, scotch, Canadian whiskey, cordials and liqueurs.
When asked if Pernod has contacted Fortune about exiting the Future Brands J-V, Carbonari said: “There has been no discussion on that.”
BRAND ACQUISITIONS. When it comes to brand acquisitions, Fortune said it prefers to grow organically. But that doesn’t mean the company won’t pounce on a brand that would enhance its portfolio (such as bourbon) or fill any weaknesses (vodka or rum).
“If we can add on certain categories, either enhancing our strength in bourbon, tequila, or cognacs, we’ll do that. If we have the opportunity to look at various vodkas or rum where we aren’t that strong, we’ll do that as well. We have the financial flexibility to do that...the Absolut deal wasn’t a must-have acquisition,” said Carbonari.
LVMH ACQUIRES WATCH, IS LIQUOR NEXT?
LVMH announced today it has signed an agreement to acquire Hublot group, a top of the range watchmaker. After its earnings last week, LVMH ceo Bernard Arnault said the company may take advantage of the worsening economy and pick up a liquor or watch brand. So does this mean LVMH will or will not acquire a liquor brand now?
“There might be opportunities in a difficult market for a group like ours to round out our portfolio," especially if smaller, family-owned companies decide to sell, he said to Bloomberg.
He declined to specify any companies LVMH may be interested in.
NORTH COAST VINEYARDS COULD LOSE 10%
Grape producers in California’s North Coast vineyard region fear they may lose as much as 10% of their crops after enduring the worst spring frost since the early 1970s. But the real impact won't be known until June, when the first grapes start to actually show and farmers can take a count of what they expect to harvest.
Among the hardest-hit areas were Sonoma County vineyards in valley locations such as Dry Creek and Alexander. Farmers usually turn on their frost-protection machines a couple of times a year, but so far this year some had to activate them as many as 30 times.
JEPSON WINERY FOR SALE
Investment group Dbon Mendocino LLC is selling Jepson Winery less than three years after acquiring it. The winery, which is also licensed as a vodka and brandy distillery, hit the market last week for $10.5 million. Dbon originally bought Jepson with plans to develop high-end estates, but the soft housing market and building restrictions in Mendocino County halted those plans.
Until tomorrow, Megan
“A little drama wins more friends than boring.”
Scott Westerfeld
--------- Sell Day Calendar ----------
Today's Sell Day: 18
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
“What we have seen a little bit is a little less consumption at bars and restaurants and more people buying at their local liquor store, but it's not that significant,” Fortune ceo Bruce Carbonari told WSJ earlier this month.
In the first quarter, spirits sales were flat in the U.S., but Fortune says some of that was a result of larger-than-usual seasonal reductions in distributor inventories.
"While our reported spirits sales were relatively flat, shipments of spirits were adversely impacted in the U.S. by larger-than-usual seasonal reductions in distributor inventories that don't reflect the health of our brands in the marketplace," Carbonari said in a statment. "Had distributor inventory movements been consistent with the prior year, our worldwide spirits sales would have been solidly higher.”
Spirits sales increased at the premium end of the portfolio, reflecting favorable mix shift and Fortune’s continued focus on growing premiums. On a depletions basis, Fortune’s global premium brands grew in the U.S. and demonstrated strong growth in the U.K., Spain and Germany, as well as in Russia, India and China.
Fortune expects U.S. spirits shipments to bounce back in the months ahead. However, given the uncertain U.S. economic environment, Fortune is narrowing its full-year target range. It is now targeting diluted EPS before charges/gains to be in the range of flat to down at a high-single-digit rate. That's versus $5.06 for 2007.
THE NUMBERS GAME. In the smallest seasonal quarter for the company, net sales were up high single digits in the U.S., reflecting large seasonal reductions in distributor inventories. Depletions were higher in the U.S. for key premium brands, said the company.
First quarter depletions for Jim Beam were off in the first quarter, but Fortune is still expecting another strong year for Beam. The next generation of Jim Beam’s market campaign will rollout in the second quarter.
Sauza had lower shipments overall in the quarter due to inventory movements and tough comps. Depletions were strong in the U.S., however, and super-premium Sauza Hornitos continued to see strong growth.
Courvoisier increased double digit net sales on strong increases in the U.S. Maker’s Mark also experienced strong depletions overall.
WEAKENING ECONOMY. There was a lot of economy talk in today’s conference call. Overall, Fortune maintains that the economy has not had a large impact on spirits sales, although it has taken a toll (albeit it small) on value brands and the on-premise. Florida and California in particular have experienced a slowdown.
“We have seen no significant changes in the U.S. market...we’ve seen some change on-premise versus off-premise...geographic slowdowns correlates to the housing market, which we are seeing most heavily in Florida and California, especially on-premise,” said Carbonari.
“We have not seen the softening U.S. economy have a meaningful impact on total consumer demand...we benefit from our strong premium position,” cfo Craig Omtvedt.
“We had a good Christmas season...we have not seen trading down. The premium brands grow more than the value side and we’ve seen this trend for awhile now. The cocktail is still an affordable luxury and people aren’t willing to give that up. We’ve seen very little trade down at this point,” said Carbonari.
INVENTORY REDUCTION. “Seasonal inventory comes down after the holiday season, at the end of the year...it was further down then we normally would have expected but that’s all it is...the depletions are still strong,” said Carbonari with regards to the inventory reduction.
ABSOLUT. Carbonari mentioned the company is “very comfortable with the outcome” of the V&S deal. Although Fortune believes Absolut would have been a good fit for the company, the final price was too high and would not bring good returns for shareholders. Instead, Fortune said it would focus on building premium spirits brands and repurchasing shares.
Carbonari reiterated that Fortune’s U.S. distribution deal with Vin & Sprit has significant protection until 2012. Pernod has also assured Maxxium that V&S will remain in the J-V for two more years.
Without Absolut, all is not lost. Carbonari reminded listeners that Fortune is the fourth largest spirits company in the world; doing excellent in the U.S.; and has leading positions in bourbon, tequila, cognac, scotch, Canadian whiskey, cordials and liqueurs.
When asked if Pernod has contacted Fortune about exiting the Future Brands J-V, Carbonari said: “There has been no discussion on that.”
BRAND ACQUISITIONS. When it comes to brand acquisitions, Fortune said it prefers to grow organically. But that doesn’t mean the company won’t pounce on a brand that would enhance its portfolio (such as bourbon) or fill any weaknesses (vodka or rum).
“If we can add on certain categories, either enhancing our strength in bourbon, tequila, or cognacs, we’ll do that. If we have the opportunity to look at various vodkas or rum where we aren’t that strong, we’ll do that as well. We have the financial flexibility to do that...the Absolut deal wasn’t a must-have acquisition,” said Carbonari.
LVMH ACQUIRES WATCH, IS LIQUOR NEXT?
LVMH announced today it has signed an agreement to acquire Hublot group, a top of the range watchmaker. After its earnings last week, LVMH ceo Bernard Arnault said the company may take advantage of the worsening economy and pick up a liquor or watch brand. So does this mean LVMH will or will not acquire a liquor brand now?
“There might be opportunities in a difficult market for a group like ours to round out our portfolio," especially if smaller, family-owned companies decide to sell, he said to Bloomberg.
He declined to specify any companies LVMH may be interested in.
NORTH COAST VINEYARDS COULD LOSE 10%
Grape producers in California’s North Coast vineyard region fear they may lose as much as 10% of their crops after enduring the worst spring frost since the early 1970s. But the real impact won't be known until June, when the first grapes start to actually show and farmers can take a count of what they expect to harvest.
Among the hardest-hit areas were Sonoma County vineyards in valley locations such as Dry Creek and Alexander. Farmers usually turn on their frost-protection machines a couple of times a year, but so far this year some had to activate them as many as 30 times.
JEPSON WINERY FOR SALE
Investment group Dbon Mendocino LLC is selling Jepson Winery less than three years after acquiring it. The winery, which is also licensed as a vodka and brandy distillery, hit the market last week for $10.5 million. Dbon originally bought Jepson with plans to develop high-end estates, but the soft housing market and building restrictions in Mendocino County halted those plans.
Until tomorrow, Megan
“A little drama wins more friends than boring.”
Scott Westerfeld
--------- Sell Day Calendar ----------
Today's Sell Day: 18
Sell days this month: 22
Sell days this month last year: 21
This month ends on a: Wed.
This month last year ended on a: Mon.
YTD sell days Over/Under: 0
WINE & SPIRITS DAILY
Subscribe or check back issues at: www.winespiritsdaily.com
Send news and comments in confidence to: megan@winespiritsdaily.com
© 2008 Wine & Spirits Daily, all rights reserved. May quote with attribution.
posted at 12:36 PM
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