Dive Brief:
- Brown-Forman's first-quarter earnings for fiscal 2019 beat expectations, with net income rising to $200 million from $178 million in the year-ago period, according to a company release. Sales jumped 6% to $766 million, with strong gains in international markets.
- The liquor company lowered its fiscal 2019 guidance from $1.75 to $1.85 EPS to $1.65 to $1.75 EPS.
- "The global economy has continued to improve over the last year. However, the competitive landscape in the developed world remains intense, and recently enacted retaliatory tariffs on American whiskey have created additional uncertainty around the company's near-term outlook, making it difficult to accurately predict future results," the company stated in the release.
Dive Insight:
Tariffs may be looming over much of the food and beverage industry, but Brown-Forman's spirits are high. The alcohol producer's Jack Daniels brand grew underlying net sales 10%, including 8% underlying net sales for Jack Daniels' Tennessee Whiskey. The beverage giant's super-premium American whiskey brands also posted strong results, growing underlying net sales 25%.
Brown-Forman and other alcohol manufacturers have been able to leverage growing consumer demand for wine and spirits, as well as waning interest in traditional beer products. Echoing its statement last quarter, the maker of Woodford Reserve bourbon and Finlandia vodka feels that improved quality and conditions across the globe could help bolster demand. It remains to be seen, however, how recently enacted tariffs will impact the company's performance in the near future.
"There remains significant uncertainty around the duration of recently enacted tariffs, but we have been encouraged by the resilience of our business model as we are working to minimize short-term disruption and maintain our top-line momentum. We believe that our consistent reinvestment back into our brands and people positions us well over the long term to continue generating leading returns for our shareholders," Lawson Whiting, Brown-Forman's COO and soon-to-be CEO noted in the release.
Whiting will replace current and longtime CEO Paula Varga at the end of the year, as part of a recent reshuffling of top management. It will be interesting to see how he approaches these volatile market conditions, though much of these changes will be beyond the company's control. Mexico imposed a 25% tariff on bourbon imports last quarter, which could rob the beverage giant of a significant path to growth. The European Union and Canada have also slapped duties on American products, including a 25% tax on whiskey, in response to the tariffs the Trump administration has placed on steel and aluminum — 25% and 10%, respectively.
Going forward, the company may need to hike prices in order to make up for lost sales. Last quarter, Brown-Forman offered early retirement to 150 well-paid employees, likely to free up money to tackle some of these obstacles. It's unclear how badly tariff tensions could bruise the alcohol maker's performance, but this could encourage possible buyers to circle. Constellation Brands reportedly attempted to buy Brown-Forman last year, but it didn't work out. The beloved Jack Daniels brand would certainly be an attractive addition to any alcohol portfolio, and current market pressures could make a sale more attractive to Brown-Forman as well.