Tickers in this Article: CEDC, DEO, BF.B, BEAM, STZ, TAP, USB, BRK.A
At some point, a company's travails can no longer be just about a difficult market. Sooner or later, management has to step up, acknowledge mistakes and craft a plan for better results. Although Polish and Russian vodka producer Central European Distribution (Nasdaq:CEDC) still has a lot of inherent value in the business, investors cannot afford to have much confidence in management anymore. Sooner or later, the question has to be asked whether the markets are truly so challenging or whether management simply isn't up to the challenges.

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Another Big Miss
CEDC reported that revenue grew 45% third quarter in 2011 compare to same period in 2010, with 25% value growth in Russia and 7% value growth in Poland. Although volumes were strong in Poland (up 18% compared to third quarther 2010), growth in Russia was just 3% and well below management expectations.

Although CEDC did manage to slightly exceed revenue targets, that's pretty much the end of the good news. Gross margin fell more than 8% and a nearly 5% drop in operating margin, as profits were up nicely (50%) in Poland, but down about 30% in Russia.

Once again, then, the company missed its earnings target (coming in at just about one-third of the estimate this quarter) and lowered its guidance. Not surprisingly, the stock got hammered in the wake of the announcement.

Familiar Excuses
For some time now, investors in CEDC have been hearing about all manner of troubles and problems in the Polish and Russian spirits markets. If it's not tax issues, it's spirits prices. If it's not bad weather, it's a plane crash. If it's not unlicensed black market rivals, it's shifting tastes. In other words, it's always something. (To know more about black market, check out: The Big Business Of Black Markets.)

I honestly don't know how many of these problems are truly beyond the capacity of any management team to withstand. I do know, though, that I don't hear these excuses from Diageo (NYSE:DEO), Brown-Forman (NYSE:BF.B), or Beam (NYSE:BEAM), though to be fair, none of these companies depend upon the Polish and Russian markets like CEDC.

I also know, though, that a $675 million impairment charge is no joke and that CEDC has a lot of debt and not a lot of cash with which to repay it. (To know more about impairment charges, read Impairment Charges: The Good, The Bad And The Ugly.)

Still a Fixable Situation
To be fair to CEDC management, it is difficult to run a debt-laden beverage company amidst changing market tastes - Constellation Brands (NYSE:STZ) has certainly seen this in the U.S. wine market, and brewers like Molson Coors Brewing (NYSE:TAP) have had their past challenges.

The good news is that CEDC's predicament is not so dire in and of itself. Whether its more appropriate to assess the company by Generally Accepted Accounting Principles (GAAP) revenue growth or its "value growth" metric, the fact is that it is still growing. Likewise, it is still a fact that CEDC enjoys good market shares in spirit-drinking countries. While antitrust matters could be an issue, it is not unreasonable for investors to approach this stock with the idea that there is a floor in the value at which a bigger company scoops it up. (To know more about antitrust, read: What Is An Antitrust Law?)

But Can They Fix It?
All of that said, management may be a problem. What has started to bother me is the absence of management acknowledging that this performance is not acceptable and that they have a responsibility to do better. Sure, it's not all their fault, but then it's almost never entirely a CEO's fault when something goes awry. That still does not prevent CEOs from companies as diverse as Kellogg (NYSE:K), Berkshire Hathaway (NYSE:BRK.A), or U.S. Bancorp (NYSE:USB) from standing up and saying, in effect, "this performance is not acceptable and it's my job to change it."

The Bottom Line
Turnaround hunters can certainly put this name in their sights, as the aforementioned market share make is not to be taken lightly. Still, at the risk of becoming strident about it, there is little reason to feel much confidence in this name until there is either a strong and clear new plan from management or new management altogether. This company and this stock can do much, much better, but I have no idea when that will happen.

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

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