US: Jack and dollar drives Brown-Forman earnings
The US drinks company Brown-Forman Corporation has seen its third quarter earnings per share jump 29% to US$0.66, driven by the weak dollar and continued growth of the Jack Daniel's Tennessee Whiskey brand.
Brown-Forman also said it was helped by improved results from the company's wine brands.
However, it warned that fourth quarter earnings growth would be tempered by higher advertising costs.
For the first nine months of the fiscal year, diluted earnings per share were $1.64, up 20% over last year.
"Year-to-date results benefited from favourable foreign exchange trends, the share repurchase, strong earnings growth for both Jack Daniel's and Southern Comfort, and increased profits from the company's new distribution arrangement in the United Kingdom," said the company in a statement.
These gains were partially offset by a charge of $0.06 per share to settle a lawsuit with Diageo Great Britain Limited involving the distribution of Jack Daniel's in the UK, lower profits from the Consumer Durables segment, and the impact of lower trade inventory levels for the company's global beverage brands.
In the third quarter, revenues and gross profit for beverages were up 12% and 16%, respectively.
Brown-Forman said the strong revenue growth was driven by the benefits of a weaker US dollar, the addition of new markets to Brown-Forman's distribution arrangement for Finlandia Vodka Worldwide, and continued volume and pricing growth for the company's spirits brands.
Jack Daniel's performed particularly well during the quarter, especially in the US where volume trends continued to accelerate. Global depletion trends for Southern Comfort were positive; however, shipments were down as wholesaler inventory levels were reduced in the US and Continental Europe.
But results for Finlandia in the US were mixed, as solid volume growth was largely offset by higher product costs, including the impact of the stronger Euro. Volumes for Finlandia in Europe continued to grow, as new markets were added for the brand.
Brown-Forman warned that the wine industry in the US remained very competitive.
"Although domestic pricing for both Fetzer and Bolla is up this year, volumes are down. In addition, higher grape costs for Bolla, coupled with the stronger Euro, reduced the brand's gross margin. Despite an improvement in operating profit from the company's wine brands during the quarter, the environment has not meaningfully improved and expected full year profit growth is modest," the company said.
Looking forward, Brown-Forman said in the fourth quarter of this fiscal year, it expected the environment to remain difficult for wine and Consumer Durables.
"However, the company is encouraged by the opportunities and trends for its spirits brands. As a result, the company will be significantly increasing its advertising investments behind its spirits brands in the fourth quarter," it said.
This increased level of advertising investment, coupled with higher pension expenses and the company's ongoing focus on lowering wholesale and retail inventories on a global basis, is expected to temper earnings growth in the fourth quarter. Brown-Forman is narrowing its guidance for fiscal 2004 earnings to a range of US$2.09 to US$2.13 per share, or EPS growth in a range of 15-17% for the current fiscal year.
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