It's no great secret that I'm a fan of Central European Distribution (NASDAQ:CEDC). I love the basic business that it was in -- alcohol distribution in Poland -- and I believe that it has been a solidly run company for quite a while.
Now, though, it's time to take a look at the company through a different lens. Specifically, the successful acquisitions of distillers Bols and Polmos Bialystok will change not only the company's capital structure but also the basic components and strategies of the business.
First of all, second-quarter results were pretty solid. Revenue climbed 24% in the period, and operating margin inched up slightly. Operating income grew 27%, and reported net income was up 24%.
Results for the quarter were actually a little worse than they might have been were it not for the death of Pope John Paul II. Poland is a devoutly Catholic country, and many bars and stores closed in deference to the observation of the mourning and funeral for the Polish-born pontiff. As a result, CEDC lost as much as $10 million in sales and up to $0.02 in earnings.
As regular readers know, CEDC is on the cusp of a significant change to its basic business. Acquiring the two distilleries will make the company the fourth-largest vodka distiller in the world and will add a considerable production capability to its already impressive distribution system. Not only will the additions be synergistic and accretive on their own, but they also could open the door for CEDC to expand its presence beyond Poland.
Of course, there is a price for this shift. The company recently completed a private placement of about 3.4 million shares for just less than $117 million. Since this move followed the end of the quarter, the financial press release does not include the new shares. But the deal represents an increase in shares outstanding of roughly 20%.
In addition to the equity deal, the company recently closed a successful bond offering. The company sold 325 million euros' worth of bonds (at par) with an 8% coupon. The bonds mature in seven years, and the company reports that the deal was heavily oversubscribed, with an order book of 1.5 billion euros.
I don't believe it is an overstatement to say that CEDC is now a different company. And change presents risk. The company now has more debt, more employees, and more operating units, and management must integrate it all and keep the company moving forward. That's a significant challenge, but it's one I believe it can meet. I'm still bullish on the business of selling (and producing) alcohol for Eastern Europe, and I still like both this company and its stock.
For more sober analysis of CEDC:
- CEDC Bellies Up to the Bar
- A Hiccup at Central European Distribution
- Firewater Puts the Kick in CEDC Earnings
- Florida Firm Drinks It Up in Poland
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
