Earnings Scorecard: Brown-Forman - Analyst Blog

One of the world's leading producers and distributors of premium alcoholic beverages, Brown-Forman Corporation (BF.B) recently posted first-quarter 2012 results. The Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs that follow, we will cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Quarterly Review

Brown-Forman Corp. recorded fiscal 2012 first-quarter earnings of 81 cents a share compared with 76 cents a share in the year-ago quarter. However, earnings missed the Zacks Consensus Estimate of 83 cents a share. The robust increase in quarterly earnings was primarily driven by strong top-line and volume growth.

Quarterly Details

Brown-Forman's net sales rose 13.0% to $840.3 million from $744.9 million in the prior-year quarter. The growth was primarily attributable to solid performance in Germany, Turkey, U.K., Russia, and Brazil that more than offset declines in Poland, Spain, and Australia. Total revenue beat the Zacks Consensus Estimate of $769 million.

(Read our full coverage on this earnings report: Brown-Forman Misses Estimate)

Management's Guidance for 2012

Moving forward, Brown-Forman anticipates moderate improvement in global economic conditions and customer trends in fiscal 2012. Accordingly, the company has pegged its earnings guidance in the range of $3.45 to $3.85 per share.

Agreement of Analysts

Estimate revision trends for the upcoming second-quarter 2012 portrayed a negative sentiment among the analysts covering the stock. Over the last 7 days, 3 out of 7 analysts following the stock have downgraded their estimates for the second quarter of 2012.

For fiscal 2012, estimate revision trends remained mixed among the analysts covering the stock. Over the last 7 days, 1 out of 7 analysts following the stock has upgraded the estimate for fiscal 2012 while 2 analysts have downgraded the same.

Magnitude of Estimate Revisions

Considering the negative movements in estimate revisions by analysts covering Brown-Forman for the second quarter 2012, the Zacks Consensus Estimate has slipped by a penny to $1.10 per share in the last seven days. For fiscal 2012, the Zacks Consensus Estimate has also moved down by a couple of cents to $3.69 per share over the past week.

Our Recommendation

Brown-Forman is one of the leading producers and distributors of premium alcoholic beverages in the world. The company commands a strong portfolio of globally recognized brands, such as Jack Daniel's, Finlandia, Southern Comfort and Canadian Mist. This provides a competitive edge to the company and bolsters its well-established position in the market. Moreover, the company plans to expand Jack Daniel's market share in the developed markets, such as France and the U.S., and emerging markets, such as Russia, Poland, and Mexico, where the whiskey category is in its early stages of development. In the near future, the company also seeks to expand the sphere of other brands, such as Gentleman Jack, Jack Daniel's Single Barrel and Jack Daniel's ready-to-drinks within Jack Daniel.

However, 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 governments of respective countries. The effect of any excise tax increase in future may have an adverse effect on the company’s financial performance. Furthermore, the company's customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively affect their discretionary spending and, in turn, the company’s growth and profitability.

Above all, Brown-Forman faces intense competition from other well-established players in the industry, including Fortune Brands Inc. (FO), Constellation Brands Inc. (STZ), and Diageo plc. (DEO). Moreover, Brown-Forman also encounters competition from local and regional players in the respective countries of operation. Consequently, this may dent the company's future performance.

Brown-Forman currently holds a Zacks #3 Rank, implying a short-term 'Hold' rating on the stock. Besides, we have a long-term 'Neutral' recommendation on the stock.

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

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

FORTUNE BRANDS (FO): Free Stock Analysis Report

CONSTELLATN BRD (STZ): Free Stock Analysis Report

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