Brown-Forman Beats, Ups View - Analyst Blog

Brown-Forman Corporation’s (BF.B) fiscal third quarter 2013 (ended Jan 31, 2013) earnings of 73 cents a share came in ahead of the Zacks Consensus Estimate of 70 cents. Moreover, earnings jumped 18% from 62 cents reported in the year-ago quarter.

Net sales increased 7% year over year to $1,026.9 million primarily due to strong demand of North American whiskeys. The year-over-year increase in sales benefited from favorable currency exchange rate, which was partially offset by negative impact from the spin-off of Hopland wine business.

On an underlying basis, the company’s net sales increased 8%. Moreover, the quarterly sales were well above the Zacks Consensus Estimate of $740.0 million.

During the quarter, Brown-Forman’s gross profit increased 12% to $506.7 million from $450.9 million reported in the year-ago quarter. Gross margin expanded 230 basis points (bps) to 49.3% compared with 47.0% in the prior-year period, primarily due to lower input cost and excise taxes as a percentage of sales.

Selling, general and administrative expenses (SG&A) increased 10% from the year-ago quarter to $162.4, while SG&A as a percentage of sales expanded 40 basis points to 15.8%. Advertising expenses surged 12% to $110.5 million.

Operating profit during the quarter climbed 15% to $237.0 million from $206.2 million in the prior-year period, primarily driven by improved gross profit, partially offset by increased SG&A and advertising expenses. Consequently, operating margin expanded 160 bps to 23.1% compared with 21.5% in the year-ago quarter.

Balance Sheet & Cash Flow

Brown-Forman, which has a Zacks Rank #4 (Sell), ended the quarter with cash and cash equivalents of $386.8 million and long-term debt of $996.6 million. Year-to-date, Brown-Forman generated $367.2 million of cash from operations and deployed $1,008.0 million toward dividend payout.

Guidance Raised

Moving forward, Brown-Forman raised and narrowed its outlook for fiscal 2013. Currently, it expects fiscal 2013 earnings in the range of $2.60–$2.68 per share, against the earlier guidance of $2.58–$2.70.

Moreover, the company continues to expect operating income to grow in the low-double-digits range, while underlying sales are expected to increase in the high-single-digit range.

Other Stocks to Consider

Other stocks worth considering in the beverages-alcohol industry are Diageo Plc (DEO), Grupo Modelo, S.A.B. de C.V. (GPMCF) and Molson Coors Brewing Company (TAP). All these stocks hold a Zacks Rank #2 (Buy).

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

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

GRUPO MODELO-C (GPMCF): Get Free Report

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

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