Brown-Forman lowers earnings outlook, cites weak emerging markets

Brown-Forman logoBrown-Forman Corp.’s shares fell more than 3 percent in early morning trading on Wednesday after the distiller lowered its earnings outlook for the year.

The Louisville-based company said it will earn less this fiscal year than previously forecast because a strengthening U.S. dollar is curbing travel of spendthrift Europeans. Weakness in emerging markets also is depressing sales growth.

The company said that despite those challenges, its third-quarter results changed little from a year ago.

Third-quarter net sales, at nearly 1.1 billion, fell less than 1 percent, while gross profit, at $555 million, rose by a fraction thanks to slightly lower excise taxes and expenses.

Net income, at $190 million, climbed 2.1 percent. Earnings per diluted share rose 7 percent, to 94 cents.

“Against a backdrop of deteriorating economic conditions in emerging markets, weakness in the global travel retail channel, and headwinds from a strengthening dollar, we had another solid quarter of underlying growth, led by the Jack Daniel’s family and our American whiskey brands,” CEO Paul Varga said in a press release.

Paul Varga

Paul Varga

Through the first nine months of the year, underlying net sales in the U.S. grew 7 percent, led by double-digit growth in Herradura and Jimador tequilas and strong performance of Jack Daniel’s Tennessee Fire. Underlying net sales in other developed markets rose 5 percent.

However, sales in emerging markets are slowing: Through the first nine months, net sales in emerging markets have grown by 5 percent, but they advanced only 1 percent in the third quarter, despite market share gains.

“Brazil, Turkey, Mexico and South Africa all delivered solid year-to-date underlying sales growth, while markets such as Poland, Russia, southeast Asia, emerging Africa, and other emerging markets in South America declined in the third quarter,” the company said in a press release.

Sales in the distiller’s Global Travel Retail channel fell 13 percent through the first three quarters of the year.

“Travel retail’s results continue to be pressured by the decline in spending from travelers, as well as continued volatility in foreign exchange, which has also resulted in weaker consumer demand,” Brown-Forman said.

The company had said in its second-quarter report that it was struggling to capture revenue growth in the travel sales channel this year “due in part to the decline of high spending Russian and European travelers as foreign currency swings have impacted travel and demand.”

Through the first nine months, underlying net sales for the Woodford Reserve brand grew 29 percent, as premium whiskey brands in general booked solid gains. Sales for the Jack Daniel’s brand grew 7 percent, with Tennessee Honey gaining 11 percent.

However, sales of Finlandia vodka fell 5 percent, in part because of the worsening Russian economy and the weaker ruble.

Given the uncertainty in the global economic environment, Brown-Forman said it expects sales to grow about 5 percent this fiscal year, down from its previous forecast of 6 percent to 7 percent growth. The company expects full-year diluted earnings per share of about $3.37, down from its previous guidance of about $3.50.