Is Brown-Forman Positioned To Gain From Its Brand Portfolio?

Leading producer and distributor of premium alcoholic beverages, Brown-Forman Corporation BF.B remains well positioned, amid a tough macroeconomic backdrop, driven by its strong portfolio of premium American whiskey brands, along with its Jack Daniel’s trademark. Boasting a solid portfolio comprising over 25 premium brands, Brown-Forman closed fiscal 2016 on a solid note as both the top and the bottom line for the fiscal fourth quarter surpassed estimates.

Bottom-line results benefitted from operating margin expansion driven by lower SG&A and advertising expenses despite lower gross margin. With this, the company delivered an average earnings surprise of 3.7% in the trailing four quarters. Also, the company’s stock gained 3.5% following the earnings release on Jun 8.

However, Brown-Forman has been battling foreign currency headwinds for a while now, along with tough economic conditions in emerging markets and soft travel retail network causing sales to decline year over year in the fiscal fourth quarter. Adverse currency movements hurt the company’s top-line growth for the fiscal by 6 points.

Also, Brown-Forman indicated that future projections have become difficult in the face of an uncertain global economic environment and its impact on business. The company expects currency headwinds to persist in fiscal 2017, which is expected to bear about a 7 cent per share negative impact on its earnings per share. The Zacks Consensus Estimate also witnessed a downtrend. All these factors raise concerns over the company’s future performance.

Nonetheless, the company expects to grow on the back of strong demand for its authentic American whiskey brands worldwide, as well as consumer interest in flavored whiskey and a growing trend in premium spirits. Alongside, the company remains focused on expanding operations and the reach of its premium brands to drive growth.

Add to this, the company’s consistent record of returning cash to its shareholders through regular dividend payouts and share repurchases, which demonstrate its ability to boost earnings and cash flows over the long term. The company also proposed a two-for-one stock split for Class A and B shares on May 26, marking the seventh split in the last 35 years.

Overall, we remain positive about Brown-Forman’s business and portfolio strength, along with its solid surprise history. But how far will these strengths help the company to tackle the current economic scenario is a matter of dispute.

Brown-Forman currently holds a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same industry include Molson Coors Brewing Company (NYSE:TAP) , sporting a Zacks Rank #1 (Strong Buy) and Compania Cervecerias Unidas S.A. (NYSE:CCU) and Diageo (LON:DGE) plc (NYSE:DEO) , each carrying a Zacks Rank #2 (Buy).


BROWN FORMAN B (BF.B): Free Stock Analysis Report

MOLSON COORS-B (TAP): Free Stock Analysis Report

DIAGEO PLC-ADR (DEO): Free Stock Analysis Report

CERV UNIDAS-ADR (CCU): Free Stock Analysis Report

Original post

Zacks Investment Research