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Wall Street Report: Diageo, Pernod, Beam, Boston Beer

May 5, 2011

Diageo’s sales for its fiscal third quarter (ended March 31, 2011) increased by 7% against the comparable period, while its global sales volume rose 2%. The U.K.-based drinks giant’s marked sales growth far exceeded analysts’ predictions, which generally called for a roughly 2% rise. For the first nine months of Diageo’s fiscal year, net sales increased 5% while volume was up 3%.

North America showed signs of recovery as sales advanced by 3% in the third quarter, due in part to a gradual improvement in consumer trends, said Diageo chief executive Paul Walsh. Johnnie Walker, Smirnoff and Jose Cuervo did particularly well, and an enhanced mix combined with lower discounting helped drive top-line growth.

Meanwhile, marked sales growth in Diageo’s International (+14%) and Asia Pacific regions (+9%) helped offset a 3% net sales decline in Europe, caused primarily by challenging conditions in Ireland, Greece and the Spanish on-premise. International Scotch sales benefited from a boost during the Chinese New Year, while Africa—particularly Nigeria and South Africa—and Australia experienced promising growth. “This overall improving trend is the result of our focus on our priority brands,” said Walsh. “We remain confident that our up weighted marketing investment together with the increased investment we have made in emerging markets in the year will continue to deliver improving performance.”

Pernod Ricard enjoyed solid sales growth in the first three months of 2011, outperforming analysts’ expectations and staying on course for its projected profit growth for its current fiscal year. The French drinks giant’s consolidated sales for its fiscal third quarter (ended March 31, 2011) advanced by 5% over the year-earlier period, to €1.62 billion ($2.37b), far outpacing analysts’ projections, most of which hovered around 2.5%. Following this encouraging performance, Pernod confirmed that it was on target to meet its projected profit growth of nearly 7% for its fiscal year, ending June 30, 2011.

For the first nine months of Pernod’s fiscal year, consolidated sales grew by 11% to €5.9 billion ($8.65b), due to 7% organic growth, a 7% positive foreign exchange effect, and a 3% negative group structure impact, primarily due to the disposal of certain Scandinavian, Spanish and New Zealand assets. For the nine-month period, Pernod’s sales jumped by 16% in emerging markets—including a 23% rise in Asia, Africa and Australasia—and 2% in mature markets. The company’s 14 “strategic spirit and Champagne brands”—which comprise nearly 60% of overall sales—grew by 7% in volume and 11% in value during the nine-month period. Five of these brands posted double-digit organic growth: Royal Salute (26%), Martell (25%), Jameson (22%), Perrier-Jouët (21%) and The Glenlivet (15%).

In the Americas, Pernod’s sales increased by 14% over the first three quarters of its fiscal year, due to 6% organic growth and a favorable currency exchange effect. Jameson and Absolut are driving growth in the U.S. market, where Pernod says it’s benefiting from the premium positioning of its portfolio.

• Strong results for Jim Beam, Maker’s Mark, Courvoisier and Teacher’s helped lift Beam Global to a 17.4% jump in net sales to $673 million in the first three months of 2011. Bruce Carbonari, chairman of Beam parent Fortune Brands, said comparable sales growth for Beam came in at mid-single digits, with added benefits seen from the initial sale of inventory to the group’s new Australian distribution arrangement with Coca-Cola Amatil (Beam’s brands were previously distributed by Pacific Beverages—the jv between Amatil and SABMiller—in Australia, where Jim Beam is the leading spirit brand). Beam’s comparable operating income growth registered in the low single digits, but Fortune Brands raised the division’s full-year operating income target to mid-single digits.

Carbonari said Beam outperformed key markets including the U.S., U.K., Spain, Germany, Australia and India in the first quarter, and will continue to ramp up investment over the course of the year. “We plan to sustain our double-digit increase in brand investment to build our brands as we deliver and support innovations like Pucker Flavored Vodka, Jim Beam Devil’s Cut and Red Stag, and develop our most promising global markets,” he said.

Fortune Brands’ overall first-quarter sales—including its home products and golf businesses, which it plans to divest early in the fourth quarter—were up 8% to $1.76 billion, with net income attributable to the company up 12.5% to $81.2 million.

The Boston Beer Co reported net revenue of $102.2 million in its 2011 first quarter ended March 31, up 8.6% from the year-earlier period. First quarter net income was $4 million, or 28 cents per diluted share, down $2.3 million or 16 cents per diluted share from first quarter 2010. The company attributed the decline to increased advertising, promotional and selling expenses. Boston Beer’s full year 2011 earnings per diluted share projection remained unchanged at between $3.45 and $3.95

Depletions grew by 7% and hit a new company record, thanks to strong performances from Twisted Tea, Samuel Adams Brewmaster’s Collection, Samuel Adams Boston Lager and Samuel Adams Seasonals, while Sam Adams Light declined. Core shipments rose by 10% to 498,000 barrels. Advertising, promotional and selling expenses rose by $6.4 million, or 22%, in the quarter. The company’s Freshest Beer Program reduced distributor inventories by around 56,000 cases at the end of the quarter, slowing net growth by 1% and earnings per diluted share by around 0.2%. The first quarter’s gross margin was 51%, and the company is maintaining its full-year gross margin target of 54%-56%.

Whole Foods Market Inc said second quarter earnings grew 33%. The supermarket chain raised its full-year earnings outlook to $1.90 a share from its prior projection of $1.76-$1.80, with sales growth projected at 11.7%-12.6%, compared to its earlier projection of 10.7%-12.8%. Whole Foods said the results were its strongest in five years. Second quarter profit was $89.9 million, or 51 cents a share, up from $67.5 million, or 39 cents a share, in the year-earlier period. Sales rose 12% to $2.35 billion and same store sales were up 7.8%.

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