Jack Daniel's Maker Feels Sting of U.S.-Europe Trade Dispute

By Jennifer Maloney 

The maker of Jack Daniel's is feeling the sting of U.S. trade disputes and retaliatory tariffs on American whiskeys.

Brown-Forman Corp., whose brands include Old Forester and Woodford Reserve bourbon, warned that profits for its current fiscal year would miss its prior forecasts because of the uncertainty and added costs created by recently enacted European tariffs.

The European Union in June started imposing 25% tariffs on U.S. whiskey, Harley motorcycles and other goods in response to President Trump's duties on steel and aluminum imports from the bloc. In July, Harley-Davidson Inc. lowered its profit guidance, and said it would shift production overseas to escape EU tariffs, drawing the ire of Mr. Trump.

Brown-Forman executives said Wednesday they were delaying price increases in some EU markets to minimize the impact on its products. "In some ways we are buying time to see if these things can be worked out," Chief Executive Paul Varga said, noting that Scotch whisky posed a competitive threat in Europe.

The executives said the delayed price increases coupled with higher costs and foreign-exchange fluctuations would erase 10 cents a share in annual profits, or roughly $50 million. The company now projects per-share earnings of $1.65 to $1.75 for fiscal 2019.

The threat of tariffs actually boosted results for the Louisville, Ky., company in its July 31-ended fiscal first quarter, driving a sales spike in Europe as wholesalers and retailers stocked up ahead of the added levies.

Sales rose 6% overall in the quarter to $766 million, as strong gains in international markets offset flat sales in the U.S. Executives said half of a 12% sales gain in developed markets overseas was the result of buying to build inventories ahead of tariffs. Quarterly profit rose 12% to $200 million, or 41 cents a share.

Class B shares of Brown-Forman were little changed in Wednesday trading, gaining 9 cents to $52.41. The stock has climbed about 25% in the past year.

On Wednesday, French spirits rival Pernod Ricard SA said pricing conditions improved in its just-completed fiscal year, but cautioned that it faced higher commodities prices for agave used in tequila and grapes used in cognac. The maker of Jameson Irish whiskey and Absolut vodka said profit for the fiscal year ended June 30 rose 13% to EUR1.58 billion ($1.85 billion) on flat sales of EUR8.99 billion. Excluding currency effects, sales rose 6% from a year earlier, the company said.

Write to Jennifer Maloney at [e-mail]

(END) Dow Jones Newswires

August 29, 2018 13:29 ET (17:29 GMT)

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