BROWN-FORMAN: 2ND-QUARTER EARNINGS DRIVE FIRST HALF
Continued volume growth in Jack Daniel's and other top-shelf liquor brands, along with an asset sale, helped Brown-Forman push its fiscal 2nd-quarter profit up 14%, while total sales were up 10%.
Jack Daniels made a bit of a comeback during Brown-Forman’s 2nd-quarter, rising to the mid-single digits (6%) in the U.S. from the previous quarter’s low-single digit numbers. Once again, Jack helped to drive the company’s growth amid restructuring and high gas prices, while Finlandia also showed improvement and Southern Comfort continued its growth.
“The 1st-quarter was influenced by the high gas prices in the U.S., and also fell during the very height of our U.S. organization, which made a disruptive impact as people moved cities and made changes,” said Paul Varga, president and ceo.
Southern Comfort posted depletions of mid-single digit growth in the U.S., just a few points below its high-single digit six-month trend, while Finlandia remained flat (up double-digits internationally).
Brown-Forman’s EPS fell short of Wall Street’s expectations, so what was the culprit? An increase in distributor inventory, according to the company.
Said Phoebe Wood, executive vp and cfo:
“We had a number of distributor changes last year, and we think they built an inventory during that transitional time to a level that was higher than the customers were taking them away. But distributor inventories are going to come down in the next quarter.”
“Some brands are up while some are moderating a bit. We’re growing very healthfully, but these factors do influence us and have changed our guidance, as you can see, along with increased grain costs.”
One of the major themes in the financial results is future costs reductions in Brown-Forman’s wine segment. Already B-F has helped increase efficiency and flexibility for the Bolla wine brand, which it continues to own and distribute around the world, by selling the production facility to Italy’s GIV.
“The transaction we did in Italy has generated a gain, but just because we sold the winery,” said Phoebe.
Phased reductions in wine costs will begin in 2008, but will really take effect in 2009 and 2010 as Brown-Forman begins the termination of “high-priced” grape contracts in the U.S., made back in 1997.
SO WHAT ABOUT PRICING? When asked to comment on the role of competition and pricing in the U.S. market, Paul reflected on the deep discounting this past summer, remarking: “The trade can still make good money even when there’s discounting taking place, so I know it’s a tendency.”
Amid all the talk of premium brand growth, Paul expressed the importance of sub-premium brands as well, highlighting the category’s ability to drive volume. That’s not to say that premium brands aren’t the fastest growing sector, however.
“The largest majority of the industry still exists at the sub-premium level, because those brands fill a role for the consumption needs of people that don’t want to pay or can’t afford to pay the premium prices. I expect that to go on for a very, very long time.”
“Premium brands provide a great opportunity as you see more middle class development in the world, prompting people to trade up, but I still think the largest amount of volume is predominately non-premium.”
Paul seemed hopeful about holiday trends, pointing out that the spirits industry has risen a whole share point in the U.S. over the past 3 or 4 months, which is a good sign going into the holidays.
“Momentum for the wine and spirits industry in the U.S. going into the holiday season is good. Our brands, particularly, have good investments behind them which we are really excited about. The consumers are there, so as long as we execute well we are optimistic this holiday season.”
Jack Daniels made a bit of a comeback during Brown-Forman’s 2nd-quarter, rising to the mid-single digits (6%) in the U.S. from the previous quarter’s low-single digit numbers. Once again, Jack helped to drive the company’s growth amid restructuring and high gas prices, while Finlandia also showed improvement and Southern Comfort continued its growth.
“The 1st-quarter was influenced by the high gas prices in the U.S., and also fell during the very height of our U.S. organization, which made a disruptive impact as people moved cities and made changes,” said Paul Varga, president and ceo.
Southern Comfort posted depletions of mid-single digit growth in the U.S., just a few points below its high-single digit six-month trend, while Finlandia remained flat (up double-digits internationally).
Brown-Forman’s EPS fell short of Wall Street’s expectations, so what was the culprit? An increase in distributor inventory, according to the company.
Said Phoebe Wood, executive vp and cfo:
“We had a number of distributor changes last year, and we think they built an inventory during that transitional time to a level that was higher than the customers were taking them away. But distributor inventories are going to come down in the next quarter.”
“Some brands are up while some are moderating a bit. We’re growing very healthfully, but these factors do influence us and have changed our guidance, as you can see, along with increased grain costs.”
One of the major themes in the financial results is future costs reductions in Brown-Forman’s wine segment. Already B-F has helped increase efficiency and flexibility for the Bolla wine brand, which it continues to own and distribute around the world, by selling the production facility to Italy’s GIV.
“The transaction we did in Italy has generated a gain, but just because we sold the winery,” said Phoebe.
Phased reductions in wine costs will begin in 2008, but will really take effect in 2009 and 2010 as Brown-Forman begins the termination of “high-priced” grape contracts in the U.S., made back in 1997.
SO WHAT ABOUT PRICING? When asked to comment on the role of competition and pricing in the U.S. market, Paul reflected on the deep discounting this past summer, remarking: “The trade can still make good money even when there’s discounting taking place, so I know it’s a tendency.”
Amid all the talk of premium brand growth, Paul expressed the importance of sub-premium brands as well, highlighting the category’s ability to drive volume. That’s not to say that premium brands aren’t the fastest growing sector, however.
“The largest majority of the industry still exists at the sub-premium level, because those brands fill a role for the consumption needs of people that don’t want to pay or can’t afford to pay the premium prices. I expect that to go on for a very, very long time.”
“Premium brands provide a great opportunity as you see more middle class development in the world, prompting people to trade up, but I still think the largest amount of volume is predominately non-premium.”
Paul seemed hopeful about holiday trends, pointing out that the spirits industry has risen a whole share point in the U.S. over the past 3 or 4 months, which is a good sign going into the holidays.
“Momentum for the wine and spirits industry in the U.S. going into the holiday season is good. Our brands, particularly, have good investments behind them which we are really excited about. The consumers are there, so as long as we execute well we are optimistic this holiday season.”
posted at 1:58 PM
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