BF.B Brown Forman Corp

Beam Inc.’s (BEAM) adjusted earnings of 53 cents a share for the third quarter of fiscal 2011 surged 13% from the prior-year quarter. The Zacks Consensus Estimate for the quarter stood at 59 cents per share.

Earnings, on a GAAP basis, were $2.65 compared with 66 cents per share posted in the year-ago quarter. The GAAP figure includes a gain on sale of the golf business and spin-off of Fortune Brands Home & Security business.

Quarterly Details

Net sales, excluding excise taxes, during the reported quarter grew 12.5% year over year to $579.3 million, surpassing the Zacks Consensus Estimate of $564.0 million. Beam’s adjusted operating income inched up 3.8% to $142.4 million. However, operating margin plummeted by 210 basis points to 24.6%.

At the end of the quarter, Fortune Brands had cash and cash equivalents of $112.0 million and total long-term debt of $1,921.0 million compared with a cash balance of $476.0 million and long-term debt of $2,551.0 million in the prior-year quarter.

During the quarter, the company generated a free cash flow of $247.5 million compared with $289.8 million in the prior-year quarter.

Guidance

The company expects to sustain its growth momentum into fiscal year 2011. Fortune Brands anticipates its fiscal 2011 to be a solid year despite higher commodity costs and investments to support long-term growth. Beam anticipates achieving a high-single-digit growth in adjusted earnings against a base of $1.92 per share.

Business Restructuring

Recently, Fortune Brands splits the company into three standalone units, giving investors pure plays in golf, home products and alcoholic drinks. After the separation, the ongoing company has been re-named as Beam Inc. The company has spun-off its home and security business to shareholders in a tax-free transaction in July 2011. The company’s home products business will retain its name of Fortune Brands Home & Security in future.

Consequent to the spin-off, the company continues to subsist as a publicly traded manufacturer of distilled spirit. This unit has parented brands like Jim Beam bourbon, Courvoisier cognac and Sauza tequila.

The company faces intense competition from well-established players, such as Diageo plc (DEO) and Brown-Forman Corporation (BF.B). Besides, global competitive conditions have also been intensified. Consequently, risk related in operating in such a competitive environment may undermine the company’s future operating performance.

Currently, Beam has a Zacks #5 Rank, implying a short-term Strong Sell rating on the stock. Besides, the company retains a long-term Underperform recommendation.

 
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