Brown-Forman Stays Neutral - Analyst Blog
18 April 2012 - 7:55PM
Zacks
We reiterate our long-term Neutral recommendation on
Brown-Forman Corporation - B (BF.B), based on the
company’s expectation of considerable improvement in consumer
trends in the fourth quarter of fiscal 2012.
Battered by higher input and fuel costs along with increased
operating expenses, Brown-Forman’s third-quarter 2012 earnings of
93 cents per share missed the Zacks Consensus Estimate of $1.00 and
declined approximately 3.1% from the prior-period level.
However, in anticipation of a solid improvement in consumer
trends during the last quarter of fiscal 2012, Brown-Forman expects
a high-single digit growth in net sales and operating income.
Moreover, the company expects fiscal 2012 earnings in the range of
$3.50 to $3.65 per share.
Brown-Forman is one of the leading producers and distributors of
premium alcoholic beverages in the world. The company commands a
strong portfolio of globally recognized brands, such as Jack
Daniel’s, Finlandia, Southern Comfort and Canadian Mist. We believe
this provides a competitive edge to the company and bolsters its
well-established position in the market.
Moreover, Brown-Forman plans to expand Jack Daniel's market
share in the developed markets, such as France and the U.S., and
emerging markets including Russia, Poland and Mexico, where the
whiskey category is in early stages of development. In near future,
the company also intends to expand the sphere of other brands, such
as Gentleman Jack, Jack Daniel's Single Barrel and Jack Daniel's
ready-to-drink within Jack Daniel’s.
Further, the company has a consistent track record of returning
cash to shareholders in the form of share repurchase, and dividend
payment. Brown-Forman has paid quarterly cash dividends
consecutively for the past 65 years while increasing the same for
the last 28 years.
However,the company’s customers remain sensitive to
macroeconomic factors including increase in fuel and energy costs,
unemployment levels, and high household debt levels, which may
negatively affect their discretionary spending, and in turn, the
company’s growth and profitability.
Furthermore, distilled spirits are subject to excise tax in
various countries. Rising fiscal pressure in the U.S., European and
many emerging markets may lead to increasing risk of a potential
excise tax on spirits by governments of respective countries. The
effect of any excise tax increase in the future may have an adverse
effect on Brown-Forman’s financial performance.
Above all,the company faces intense competition from other
well-established players in the industry, including Beam
Inc. (BEAM), Constellation Brands Inc.
(STZ) and Diageo plc (DEO). Moreover, Brown-Forman
also encounters competition from local and regional players in the
respective countries. Consequently, this may dent the company’s
future operating performance.
Currently, Brown-Forman has a Zacks #4 Rank, which implies a
short-term Sell rating.
BEAM INC (BEAM): Free Stock Analysis Report
BROWN FORMAN B (BF.B): Free Stock Analysis Report
DIAGEO PLC-ADR (DEO): Free Stock Analysis Report
CONSTELLATN BRD (STZ): Free Stock Analysis Report
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