Corby Spirit and Wine (TSX: CSW.A) is a leading Canadian manufacturer, marketer, and importer of spirits and wines. Corby owns a diverse brand portfolio that allows the company to drive profitable organic growth with strong, consistent cash flows.
The company has a price-to-earnings ratio of 17.41, a price-to-book ratio of 2.63, and market capitalization of $443 million. Debt is very sparingly used at Corby, as evidenced by a debt-to-equity ratio of just 0.035. The company has excellent performance metrics with an operating margin of 22.41% and a return on equity of 14.46%.
The company derives revenues from the sale of company-owned brands as well as earning commission income from non-owned brands in Canada. The company also supplements these primary sources of revenue with other services incidental to the core business, such as logistics fees and, from time to time, bulk whisky sales to re-balance maturing inventories.
Revenue from Corby’s owned-brands predominantly consists of sales made to each of the provincial liquor boards (LBs) in Canada and also includes sales to international markets. Corby’s portfolio of owned brands includes some of the most renowned brands in Canada, including J.P. Wiser’s Canadian whisky, Lamb’s rum, Polar Ice vodka, and McGuinness liqueurs.
The company’s remaining production requirements have been outsourced to several third-party vendors including a third-party manufacturer in the United Kingdom (U.K.). The U.K. site blends and bottles Lamb’s products destined for sale in countries located outside North America. In most provinces, Corby’s route to market in Canada requires shipping products to government controlled LBs.
The LBs then sell directly, or control the sale of, beverage alcohol products to end consumers. Exceptions to this model include Alberta, where the retail sector is privatized. In this province, Corby ships products to a bonded warehouse that is managed by a government-appointed service provider who is responsible for warehousing and distribution into the retail channel.
Corby’s operations are subject to seasonal fluctuations: sales are typically strong in the first and second quarters, while third-quarter sales usually decline after the end of the retail holiday season. Fourth-quarter sales typically increase again with the onset of warmer weather, as consumers tend to increase their purchasing levels during the summer season. In addition, retail sales comparisons can be affected by timing of key holidays and LB’s reporting calendars.
Corby’s business strategies are designed to maximize sustainable long-term value growth and thus deliver solid profit while continuing to produce strong and consistent cash flows from operating activities. The company’s portfolio of owned and represented brands provides an excellent platform from which to achieve current and long-term objectives. Management believes that having a focused brand prioritization strategy will permit Corby to capture market share in the segments and markets that are expected to deliver the most growth in value over the long term.
The company’s strategy is to focus on making investments to leverage the long-term growth potential of key brands. Over the long term, management believes that effective execution of this strategy will result in value creation for Corby shareholders.
