Tariff impact prompts Brown-Forman to lower earnings forecast

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Despite a solid first quarter, Brown-Forman on Wednesday lowered its earnings outlook for the year as it expects a growing impact from international trade disputes.

The Louisville-based distiller said that it got a sales bump in the first quarter in part because overseas distributors accelerated their purchases to bring American whiskey to their shores before the implementation of tariffs.

However, CFO Jane Morreau said that the company likely would see a commensurate sales decline during the remainder of the year — excluding any additional slump brought on by higher prices and lower consumer interest.

Brown-Forman also said that it has raised prices to offset the tariffs only in limited markets to minimize the impact on sales momentum, but as the year progresses, the company plans to institute more price increases across more markets, which will deflate sales.

Paul Varga

“In some ways … we are buying time,” CEO Paul Varga said Wednesday morning in a call with analysts.

President Donald Trump this year instituted tariffs on imported steel and aluminum, and metal exporters, including the European Union, retaliated by imposing tariffs on some politically sensitive U.S. exports, including bourbon, which is made in the home state of Senate Majority Leader Mitch McConnell.

U.S. distillers have warned that the tariffs would lower company profits and increase prices for international consumers. They also worry that the higher prices will push those consumers toward other liquors and impede the strong growth that companies including Brown-Forman have experienced overseas. More than half Brown-Forman’s sales are generated outside of the U.S.

Leaders of international spirits associations visited Louisville last month to urge world leaders to de-escalate trade tensions and to work toward the elimination of tariffs, which, the liquor leaders said, are threatening long-standing global partnerships, profits, innovation, farmers, tourism, consumers and workers.

Higher demand for Jack Daniel’s, Woodford Reserve

Brown-Forman first-quarter revenue growth by region. Figures in parentheses are adjusted for currency fluctuations and other factors. | Courtesy of Brown-Forman

Brown-Forman said Wednesday that first-quarter net sales, at $766 million, rose 6 percent compared to the first quarter of last year, thanks primarily to rising international sales: Revenue in developed markets outside the U.S. rose 12 percent.

Adjusted for currency fluctuations and other factors, sales improved 9 percent, with about a third of that growth coming from distributors that stocked up on American products before the tariffs took effect.

The Jack Daniel’s family of brands saw continued strong demand, with sales improving 7 percent in the first quarter, while sales for premium whiskey brands, including Woodford Reserve, spiked 24 percent.

Gross profit rose 6 percent, to $523 million, while net profit, at $200 million, rose 12 percent, thanks in part to an 18 percent decline in income taxes.

Jane Morreau

Morreau said in the earnings call that while the federal tax cut signed into law in December would bolster the company’s bottom line, markets remain highly competitive, which means Brown-Forman has to weigh carefully when and how it responds to the tariffs.

In a handful of markets, the distiller already has increased prices, but it has held off making pricing changes for some of the larger E.U. markets. Varga said that the company views the price increase deferment as “an investment in consumer momentum.”

Morreau said the timing and scope of price increases will be determined market by market and will be affected by factors including the behavior or consumers and competitors — though the impact of the tariffs and the company’s response will swell as the year progresses.

Morreau said Brown-Forman now expects to generate earnings per share this year of about $1.70, down 10 cents from its projection in June. Of that decline, she said, 60 percent is a result of tariffs.

Incoming CEO Lawson Whiting said that despite some “unusual” developments with which the company is dealing, Brown-Forman had a “very good quarter.”

Shares rose more than 2 percent in early morning trading but by noon had given up most of their gain. At 12:26 p.m., shares traded for $52.63, up 0.57 percent for the day.