Apr 30, 2009

Money to Be Made In Alcoholic Beverages

When attending social events, it came to my attention the amount of alcohol that is often consumed when people gather. So I started doing a bit of investigating and noticed that among the biggest companies that produce spirits tend to have very healthy profit margins and incredibly reasonable returns on equity.

While studying the financial statements of Pernod Ricard, I was wondering if that company had a subsidiary in Canada that was majority owned but had enough shares outstanding to still be publically listed and I hit the jackpot.

The company in question is called Corby Distilleries Limited (TSE: CDL.A, TSE: CDL.B). The company has been around for a while in Canada, since 1859 to be precise. It is a leading Canadian manufacturer and marketer of spirits and imported wines. Corby’s portfolio of owned-brands includes some of the most renowned brands in Canada, including Wiser’s Canadian whiskies, Lamb’s rum, Polar Ice vodka and Seagram Coolers. Through its affiliation with Pernod Ricard S.A., Corby also represents leading international brands such as Chivas Regal, TheGlenlivet and Ballantine’s scotchwhiskies, Jameson Irish whiskey, Beefeater gin, Malibu rum, Kahlúa liqueur, Mumm champagne, and Jacob’s Creek and Wyndham Estate wines. Corby has about a 24 percent share of spirit sales in Canada,representing more than 4,000,000 cases of spirits sold annually. Corby owns or represents 8 of the 25 top-selling spirit brands in Canada, and 16 of the top 50, as measured by case volumes. Additionally, with volume of approximately 900,000 cases, Corby is also a leading importer of wines in the country, and that impresses me since it is not a much known company.

It wasn’t a subsidiary of the French parent company at first, because the company already has it’s own brands of spirits. Where things get interesting is the alliance with Pernod Ricard. The company currently has a net income of about 100 million dollars a year without the use of leverage, awarding the company with a net profit margin of about 40%! So it makes total sense for the company to be profitable even during the current economic conditions.

That partnership also awards the company with an expanded portfolio of product so sell. Recent numbers have shown that the Canadian market for alcoholic beverages has been surging through the first quarter of 2009. That is a reason I like this company a lot, mostly since they are the only authorised distributor of Pernod Ricard products in Canada.

Full disclosure: the author has no position in CDL.A or CDL.B

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