Brown-Forman shares fall 7 percent on Q4 results, tariff fears

Bourbon barrels are charred in the Brown-Forman Cooperage. | Photo by Boris Ladwig

Brown-Forman shares fell nearly 7 percent by early afternoon Wednesday after the distiller reported higher expenses and lower profit and warned that results this year could be dragged down by a looming trade war.

Shares traded at $52.02 at about 1:20 p.m., down $3.85 or 6.9 percent from Tuesday’s close. The Dow was up nearly 1 percent.

Brown-Forman said that while net sales in the fourth quarter, which ended April 30, rose 6 percent, to $733 million, net income, at $110 million, fell 32 percent, primarily because selling, general and administrative expenses rose by 50 percent, to $268 million.

Brown-Forman said profits were dragged down in part by the previously announced creation of a $70 million charitable foundation. Excluding those and some other expenses, the distiller said operating profit fell 4 percent.

For the year, net sales increased 8 percent, to $3.2 billion, while net income, at $717 million, rose 7 percent.

Paul Varga

CEO Paul Varga, who just announced his retirement, remained upbeat about the company’s position and future, but Brown-Forman also warned of potential challenges related to tariffs.

President Donald Trump this year instituted tariffs on steel and aluminum imports from Mexico, Canada and the European Union, but leaders in those countries have said they plan to retaliate by slapping tariffs on U.S. products including Harley Davidson motorcycles, Florida orange juice and bourbon.

U.S. Sen. Mitch McConnell, R-Ky, said last week that the looming trade war would hurt Kentucky.

Brown-Forman said in a news release Wednesday that factors including “potential retaliatory tariffs on American spirit … make it difficult to accurately predict future results.”

In a conference call with investors, Varga described the situation as difficult, according to Reuters.

“It’s a tough, tricky situation that we’ve been watching now for months. It seems like every day we wake up and it takes a little bit of a twist and turn,” Varga said.

More than half the company’s sales are generated outside the U.S. In the last year, sales in Mexico rose 15 percent, and in Germany, France and Poland rose more than 10 percent. Each of those countries is in Brown-Forman’s top 10 markets. Together, they account for about 17 percent of sales.

Brown-Forman said it expects underlying net sales to grow about 6.5 percent this fiscal year and earnings per share of about $1.80 — but only “assuming current trends continue.”