May 12, 2008 - Central European Distribution Corp. (CEDC-NASDAQ) helped Poland toast its post-Communist economy in 1991 when co-founders William O. Carey and Jeffrey Peterson introduced Foster's lager to the country. CEDC imports and distributes more than 700 brands of beer, spirits, and wines in Poland through more than 39,000 outlets. CEDC offers spirits made by Bacardi and Diageo. Other brands include Corona , Jim Beam, and E&J Gallo wines. Also a vodka distiller, the company's flagship products include Bols, Soplica, and Royal vodkas. The company owns two distilleries and operates 17 distribution centers throughout the country and offers next-day order delivery.

First quarter results were released on April 30, better than anticipated. Earnings were $0.31 per share, $0.03 more than the First Call consensus of $0.28; revenues rose 37.5% year over year to $313.6 mln vs the $270.9 mln consensus. The company issued in-line guidance for Fiscal Year 08, sees Earnings Per Share of $2.30-2.45 vs. $2.40 consensus; sees FY08 revs of $1.47-1.57 bln vs. $1.47 bln consensus. CEDC issued higher guidelines for Fiscal Year 09, sees EPS of $3.00-3.20 vs. $2.87 consensus; sees FY09 revs of $1.7-1.8 bln vs. $1.61 bln consensus.

In the last 3 years, earnings have gone from 70 cents a share to $1.53 to $1.91. Sales increased from $750 million to $944 million to $1.189 billion. Over the next 5 years, analysts expect sales to grow by 15.5% a year, on average, while earnings ramp by 23% a year, on average. Improvements like that suggest the company hasn't come anywhere near saturating its markets.

The company is adding new brands, most recently gaining a majority interest in Parliament vodka, giving it a presence in the Russian spirits market. It also invested in Whitehall Group, an importer of wines and spirits in Russia. It's already made acquisitions or investments in Hungary. CEDC has a good chance of being a dominant distributor in Russia, Hungary and Poland. It recently did a $310 million convertible note offering to further its growth, most likely through acquisitions.

The stock has been on a good run over the last few years, going from a low of $18.90 in 2006 to a recent all-time high of $63.70. In the last 6 years, there have been 3 stock splits, each 3 for 2. At the current price level, it would seem much of the good news has been baked into the stock, but if the company continues to expand operations and at such a profitable rate, the predictions may prove to be conservative.

More numbers: Net profit margin was 6.5% in 2006; expect 5.9% this year and 6.2% next year. Debt is 43% of capital. Officers and directors own 11.2% of the stock. Return on Equity was 9.5% last year, look for 12% this year and 12.5% next year. There is no dividend. Book Value was $20.22 last year.

This is an interesting stock with good potential. With most of its earnings coming from outside the U.S., it isn't subject to the U.S. economic problems. That exposes it to foreign governments that appear to be moving more to an open, capitalistic system, but that may happen more slowly than investors like or may change. With a weak dollar, the stock has benefitted, but when the dollar strengthens, it will be a disadvantage for the company.

- Company Web site: www.ced-c.com

- Ted Allrich