UPDATE 2-Beam optimistic on 2013 as bourbon remains strong

Fri Feb 1, 2013 9:24am EST

By Martinne Geller

Feb 1 (Reuters) - Beam Inc reported a smaller-than-expected decline in fourth-quarter earnings and gave an optimistic 2013 forecast as it benefits from strong demand for bourbon and growth in emerging markets.

On a net basis, the maker of Jim Beam, Maker's Mark and Knob Creek bourbons said on Friday that earnings were $126.3 million, or 79 cents per share, in the fourth quarter. It earned $88.5 million, or 56 cents, a year earlier.

Excluding one-time items, earnings fell 3 percent to 67 cents per share, due to a 20 percent increase in advertising spending during the key holiday season.

On that basis, analysts, on average, were expecting 66 cents per share, according to Thomson Reuters I/B/E/S.

Beam, which ended its first full year as a standalone drinks company, cited a bigger-than-expected lift from last year's purchase of Pinnacle vodka and higher-than-expected sales of bourbon, which has been gaining popularity in recent years.

Overall net sales rose 11 percent to $709.1 million.

Excluding the impact of foreign exchange rates, acquisitions and divestitures, sales rose 5 percent, fueled by gains of 8 percent in North America and 4 percent in the Europe, Middle East and Africa segment.

Sales in the Asia Pacific/South America segment fell 2 percent, hurt by lower results in India where the company is "repositioning its business" after a report of possible violations of the U.S. Foreign Corrupt Practices Act.

Beam said in November it was investigating allegations of financial lapses at its Indian operations and that corrective actions had been taken. It said at the time its moves could affect business in the country, which represented about 3 percent of sales and a smaller percentage of profit.

The company did not elaborate on those actions.

M&A HELPS OUTLOOK

For the new year, Beam said it is aiming for earnings-per-share growth in the high single digits in percentage terms, before one-time items, versus the $2.40 per share it earned in 2012.

The overall spirits market should grow about 3 percent this year, in line with last year, the company said, adding that it will face higher raw material costs and very little help from price increases.

Still, Beam expects to benefit from strong demand for bourbon, new products and marketing, strong growth in emerging markets and recent acquisitions.

Beam itself has been seen as a takeover candidate ever since late 2011, when it was separated from the home products business now known as Fortune Brands Home & Security Inc.

But the deal in April to buy Pinnacle for $605 million made it a much bigger bite for potential buyers, which could include Britain's Diageo Plc, France's Pernod Ricard SA and privately held Bacardi.

Market speculation has centered around Diageo buying Beam, since Beam's bourbons would fill a glaring hole in the global leader's portfolio. The rumors heated up in December, when Diageo said it ended talks on buying a stake in Jose Cuervo, the top-selling tequila, making Beam's Sauza tequila also attractive.

Diageo said on Thursday it planned to focus on developing its own tequila brand in-house.

Taking into account the 17 percent rise in Beam shares over the past year through Thursday, its market capitalization was $10 billion. Its shares did not trade premarket on Friday.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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