2010 was an interesting year for the distillers. Overall, the adult beverage makers saw modest improvements in sales throughout the year. The global credit crisis helped dispel the commonly held belief that alcohol is recession proof. Guest traffic at bars and restaurants was significantly down, and this caused a shift in consumption to the lower-profit, at-home channel. High unemployment and fragile spending caused many consumers to trade down in most spirit categories. However, with the economy showing signs of a rebound, the distillers are seeing growth.
The sector as a whole has managed to outperform the S&P 500, with the bulk of the gains coming over the last six months. Companies such as Craft Brewers Alliance (Nasdaq:HOOK) have managed to clock in very impressive gains. HOOK is up over 210% over the last 52 weeks. As the sector continues to evolve in the wake of the recession, we look back at some of the big players.

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Booze, Golf Clubs And Faucets

The biggest story affecting the alcohol and spirit sector could be the proposed break-up of Fortune Brands (NYSE:FO). After years of speculation, the company has finally decided to focus strictly on booze. The home business will be spun-off to shareholders and become a separate publicly traded company, and analysts predict that the golf business will be sold off right. Activist investor, William Ackman, recently disclosed owning an 11% stake in the company, and many believe that was the "final nail in the coffin" for splitting up the company.

The Emerging British Giant

While Diageo (NYSE:DEO) is finding growth sluggish in developed markets like the United States, its emerging-market businesses are booming. Operating in 180 countries, the company is poised to take advantage of these new consumers. The maker of Johnnie Walker whiskey and Smirnoff vodka has grown liquor sales in the Middle East and North Africa (MENA) region by 16% this year. The company has also expressed interest in purchasing Turkish spirits company Mey Icki and increasing its exposure in China with domestic spirit Baiju. Currently, China New Borun (NYSE:BORN) is the pure play on the growth of Baiju.

Building On 2009

Jack Daniels distiller Brown-Forman (NYSE:BF.B) has been building on the gains it made in 2009. The company recently reported a 5% increase in net income. Looking forward, Brown-Forman raised its fiscal 2011 guidance to the $3.18 to $3.42 range. In September, its full-year 2011 outlook was $2.98 to $3.38 per share. Strong sales in various global markets, such as Australia, Mexico, Spain and Turkey, contributed to this increase.

Finally, vineyards such as Constellation Brands (NYSE:STZ) and Vina Concha y Toro (NYSE:VCO) have also shown increasing revenues and guidance as consumers begin to spend more on alcohol.

Bottom Line

The liquor industry showed improvement in 2010 but still has a way to go. With consumer sentiment remaining low and spending tight, distiller-developed market margins will continue to be squeezed. Those companies that have a vast brand catalog, across many emerging markets, will be the winners in 2011. (For related reading, see The Evolution Of Sinful Investing.)

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