Brown-Forman Winds Up Debt Offering - Analyst Blog
17 Dezember 2012 - 4:20PM
Zacks
Recently, Brown-Forman
Corporation (BF.B) – one of the leading producers and
distributors of premium alcoholic beverages in the world – has
completed the offering of $750 million senior unsecured notes. The
debt offering has been completed on the scheduled date i.e. Dec 12,
2012.
According to the company, the notes
have been offered in three different tranches having distinct
maturity dates. The first $250 million notes, carrying an annual
interest rate of 1.00%, will mature on January 15, 2018. Another
$250 million worth of senior notes, which is issued at an
annualized interest rate of 2.25%, is due on January 15, 2023. The
last $250 million of notes carry an annual interest rate of 3.75%
and maturity date of January 15, 2043.
A consortium of Barclays Capital
Inc., Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, U.S. Bancorp Investments, Inc., Deutsche
Bank Securities, Inc. and Wells Fargo Securities, LLC were the
Underwriters of this issuance.
Management at Brown-Forman stated
that the proceeds from the offering along with $100 million of cash
on hand will be utilized to pay the special cash dividend of $4.00
per share, which brings the total dividend amount to approximately
$850 million. The special cash dividend is separate from the
company’s regular quarterly dividend. Earlier on Nov 15, 2012,
Brown-Forman announced an increase of 9.3% in its regular quarterly
cash dividend to 25.5 cents per share, payable on Dec 16, 2012.
The company has a consistent
track-record of returning cash to its shareholders in the form of
share repurchase and dividend payment. Brown-Forman has paid
quarterly cash dividends consecutively for the past 65 years and
has been increasing it for the last 29 years. The company’s recent
dividend increase and special cash dividend reflects its commitment
to enhance long-term value for shareholders. Through this,
Brown-Forman also represents its ability to boost the long-term
prospects for earnings as well as cash flows.
As of Oct 31, 2012, the company has
a cash and cash equivalents of $368.5 million, long-term debt of
$501.4 million and shareholders’ equity of $2.305 billion. The
current debt-to-capitalization ratio comes to 17.9%. However, after
the completion of the debt offering, it will double to 35.2%. We
believe that the debt-to-capitalization ratio, following the debt
offering, will gradually decline in the long run owing to the
company’s consistent track-record of generating cash flows, which
may be utilized to bring down debt.
Our
Recommendation
We believe that Brown-Forman’s
strategy of expanding Jack Daniel's market share in developed
markets, such as France and the U.S., and emerging markets
including Russia, Poland and Mexico, where the whiskey category is
in the early stages of development, will enhance its top line.
However, apart from macroeconomic
headwinds, 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 the governments of respective countries. The
effect of hike in excise tax 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, such as Beam Inc. (BEAM),
Constellation Brands Inc. (STZ) and Diageo
plc (DEO). Moreover, Brown-Forman 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
#3 Rank, which implies a short-term Hold rating. Moreover, we
maintain a long-term ‘Neutral’ recommendation on the stock.
Brown-Forman is one of the leading
producers and distributors of premium alcoholic beverages in the
world. The company has a strong portfolio of more than 25 premium
brands, including Jack Daniel’s – the flagship spirits brand –
followed by Southern Comfort liqueur, Canadian Mist whiskey,
Finlandia vodka as well as Fetzer and Korbel wine brands.
Brown-Forman markets its products in more than 135 countries
including, the U.S., UK, Australia, Mexico, Poland, Germany,
France, Spain, Italy, South Africa, China, Japan, Canada, and the
Russian Federation. The Louisville, Kentucky-based company also has
16 production and warehousing facilities spread across the U.S.,
Europe and Mexico.
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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