Dive Brief:
- Brown-Forman's fourth-quarter earnings fell to $144 million from $522 million a year earlier, according to a company release. The beverage maker's sales dropped to $887 million from $933 million, and net sales dipped to $694 million from $729 million.
- The Jack Daniels brand saw healthy growth for the quarter, with Tennessee Whisky sales growing 3%, Tennessee Honey rising 4% and Tennessee Fire surging 14%. El Jimador tequila sales also rose 8% for the period, while Finlandia vodka slipped 1%.
- “Given the acceleration we experienced in the second half of the year, the investments we continue to make behind the business, and the expectation of improved contribution from innovation next year, we are forecasting another strong year in fiscal 2018, with mid-single digit underlying net sales growth and operating expense leverage driving 6-8% growth in underlying operating income," said Paul Varga, Brown-Forman's CEO.
Dive Insight:
The Jack Daniels brand continues to lead growth for Brown-Forman, boosted by the launch of Jack Daniel's Tennessee Rye. Healthy performances from the company's bourbon and tequila brands also contributed to growth, along with the introduction of Slane Irish Whiskey.
Still, the company's profit slipped for the second quarter in a row, a decline the company attributes to the strong dollar and the sale of its Southern Comfort brand to Sazerac for $542.4 million. Brown-Forman also stated its facing a volatile global economy, including growing competition from established markets and disruption from emerging regions that makes "it difficult to predict future results." Foreign markets drive more than half of all sales for the American spirits maker.
Brown-Forman forecast a strong fiscal 2018, with EPS of $1.80 to $1.90 — up from $1.71 per share in 2017 — factoring in sales growth of between 4% and 5%.
Brown-Forman's earnings results come just a few weeks after serial-acquirer Constellation Brands, the maker of Svedka Vodka and Corona, attempted to buy it. Brown-Forman wasn't interested in the deal, but Constellation is still interested in a potential merger. There is no evidence the two parties have restarted talks.
It's no surprise Brown-Forman is an enticing acquisition target — its portfolio of well-known and beloved brands would be a valuable addition to any alcoholic beverage maker. A deal could further bolster Constellation's playbook, especially after the company's purchase of High West Distillery. The acquisition allows it to create more premium beverages, especially in popular categories such as bourbon and rye.
Analysts feel it's unlikely the deal will go through, both because of Brown-Forman's lack of interest and the impact the merger would have on Constellation shareholders. It will be interesting to see if Brown-Forman continues to give suitors the cold shoulder going forward, and if it will focus on product innovation and new brand development rather than M&A to make gains in the spirits market.