BF.B Brown Forman Corp

Leading global producer and distributor of premium alcoholic beverages, Brown-Forman Corporation (BF.B) announced its intention to split its Class A and Class B common stocks, proposing to distribute one additional share to shareholders for every two shares held.

Per the announcement, Brown-Forman proposes to distribute the new shares under the 3-for-2 stock split in the form of a stock dividend. Presently, the split proposal is subject to receiving shareholder approval and their vote on the issue in the regular annual meeting to be held on July 26, 2012.

If approved, the company plans to complete the proposed split on August 3, 2012, with the shareholders receiving the additional shares on August 10. This split will add to the company’s history of stock splits marking the sixth split in the last 35 years.

Moreover, the company indicated that the proposed stock split will not hamper the company’s quarterly cash dividend of 35 cents per share payable on July 2, 2012.

Brown-Forman’s stock split announcement reflects the company’s commitment to enhance long-term value for shareholders. It also portrays the company’s confidence to boost its longer-term prospects for earnings as well as cash flows.

Brown-Forman reported fiscal year 2012 financial results on June 6, 2012. The company’s adjusted earnings of $3.56 per share during fiscal 2012 fell short of the Zacks Consensus Estimate of $3.59 as well the previous fiscal earnings of $3.57. However, net sales during the fiscal increased 6% to $3,614.4 million compared with $3,404.3 million in fiscal 2011, surpassing the Zacks Consensus Estimate of $3,453 million.

During fiscal 2012, Brown-Forman generated $516 million of cash from operations and deployed $192 million for dividend payout, $220 million toward share repurchase, $58 million on capital expenditures and $248 million toward debt repayment.

Brown-Forman ended the fiscal with cash and cash equivalents of $338 million and long-term debt of $506 million (including the current maturities) compared with $567 million and $759 million, respectively, in fiscal 2011.

Brown-Forman possessing brands such as Jack Daniel’s, Finlandia, Southern Comfort and Canadian Mist, commands a strong portfolio of globally recognized brands. We believe this provides a competitive edge to the company and bolsters its well-established position in the market.

Brown-Forman is in direct competition with Beam Inc. (BEAM),Constellation Brands Inc. (STZ) and Diageo plc (DEO). Currently, Brown-Forman has a Zacks #3 Rank, implying a short-term Hold rating. We maintain our long-term Neutral recommendation on the stock.

 
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