Brown-Forman (NYSE:BF.B) kicked off its fiscal year of 2012 with a strong sales hike and increased net income for its first quarter. The company saw continued international growth as well as improved U.S. business, led by the introduction of its new Jack Daniel's honey-flavored whiskey.
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A Honey-Led Quarter
Much of the quarterly success was attributed to the new Jack Daniel's Tennessee honey whiskey, as this drove improved U.S. sales. The new product was introduced in March and is part of the trend of flavored spirits with which companies hope to attract new customers. Higher volumes for Jack Daniel's Tennessee whiskey, as well as ready-to-drink brands, along with Chambord Vodka, Herradura, Sonoma-Cutrer and Woodford Reserve led the net sales growth. Lower sales for Korbel, Southern Comfort and el Jimador partially offset these gains.
Brown-Forman earned net income of $118.1 million in the quarter, or 81 cents a share, compared to $111.4 million or 76 cents a share in the year-ago quarter. Revenue was $840.3 million, an increase from $744.9 million in the first quarter last year. The net income increase was 6%, while revenue rose 13%.
International Sales Growing
In addition to its gains in the U.S., Brown-Forman reported sales gains in the U.K., Germany, Russia and Brazil, though a few of its other international markets showed declines. The company now does more than half its business internationally. While its core product, Jack Daniel's Tennessee whiskey, registered only a 2% sales gain in the U.S., sales grew 16% internationally. Brown-Forman's reported advertising spending grew 19%, while its reported SG&A increased by 5%. The company expects to earn $3.45 to $3.85 per share for the full year. (For related reading, see Understanding The Income Statement.)
Although it is axiomatic that alcoholic beverage companies do well in both good and bad economies, French spirits company and maker of Absolut vodka Pernod Ricard (OTC:PDRDF) was expected to post higher annual profits due to the growth of Asian markets.Worries over the tough U.S. and European markets and their sluggish economies loomed. The world's largest alcoholic beverage company, Britain's Diageo (NYSE:DEO), beat forecasts with last week's earnings as it posted full-year income that jumped 16%. Diageo has set a goal of more than 10% earnings growth and has exposure to emerging markets.
The world's largest winemaker, Constellation Brands (NYSE:STZ), reported its quarterly earnings at the end of June. Its adjusted earnings per share (EPS) were 39 cents versus the year-ago quarter's 38 cents. Excluding items, earnings increased to 35 cents a share from 22 cents in the year-ago quarter. Constellation shed several businesses, so its sales were somewhat skewed, but its organic sales increased by 2%. Sales for its top 15 wine brands expanded faster than the market average, which helped its U.S. wine profitability.
Fortune Brands (NYSE:FO) is on the verge of finally completing its long-anticipated breakup. Some units were sold, while in October the spirits business, which includes well-known brands Jim Beam and Canadian Club, will begin trading as a public company under the ticker "BEAM". Rather than a conglomerate featuring home security and the golf business, along with its liquor products, this will make Beam a solo player more akin to Diageo and the others.
The Bottom Line
Despite the good quarterly results, the market was expecting 2 cents more on the EPS, so the stock lost 2.4% by the close on Wednesday, the day of the earnings report. Long term that shouldn't matter, as Brown-Forman is still a solid company with growth prospects. The heart of the spirits industry is brands, along with promoting those via marketing and building customer loyalty. Brown-Forman has that with its Jack Daniel's label. Brown-Forman may not be the giant that Diageo is, but it's large enough and formidable enough to keep its powerful brands productive even in this sluggish economy. (For related reading, see How To Evaluate The Quality Of EPS.)
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