Booze is a great business. It's pretty simple and technologically uncomplicated, demand is usually consistent and brand-loyal, and pricing can be surprisingly firm. As a leading distributor of alcohol in Poland (a nation with fairly high per-capita consumption), CentralEuropean Distribution Corporation (NASDAQ:CEDC) has seen laudable growth for the past five years.
Results for the first quarter were almost as strong as the vodka the company sells. Sales were up 36% to $150 million. What's more, the company improved its gross and operating margins and saw 64% operating income growth. Higher interest expenses muted some of this, though, and net income grew "only" 49% versus the prior year, while earnings per share grew 42%.
Not only is CEDC the largest domestic vodka distributor in Poland (and vodka is the most popular spirit in the country), but it is also the largest importer of alcoholic beverages. Overall sales of imported products climbed 41% for the quarter, while sales of imported spirits and wine grew 67% and 47%, respectively. This is strong top-line growth, and imports carry higher margins for the company as well.
CEDC has built itself through a series of acquisitions of smaller distributors and is now getting into the production side of the game. Not only has the company acquired Bols, a leading vodka producer with 12% share, but it is in the running for a controlling interest in the privatization of Polmos Bialystok -- the largest vodka distillery in Poland. Even if the company loses its bid for Polmos Bialystok, the acquisition of Bols means that the company will be adding a significant new component to its business -- importing alcohol out of Poland.
CEDC has been a big success from both an operational and stock market perspective. So of course, even though I've never run a liquor business, I'm going to suggest that it can do even better.
While I think that CEDC can continue to do great things just inside of Poland, I have to wonder what more the company could accomplish if it tried to branch out into other areas like Russia, Hungary, or Romania. Poles aren't the only people in Eastern Europe who drink, and the basic formula of providing quality brands and great service while buying up smaller distributors has worked all around the globe.
In the meantime, there's quite a lot to like about the present-day business. In addition to the aforementioned growth, the company sports a double-digit return on assets and a pretty reasonable valuation relative to that growth. While income investors may be more attracted to DiageoPLC (NYSE:DEO) and value investors may choose to follow Warren Buffett into Inside Value recommendation Anheuser-Busch (NYSE:BUD), CEDC could be the tipple vendor of choice for the growth crowd.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
