just On Call - Brown-Forman in cautious spirits
- Sees no significant upturn in US
- Share price drops 5% after Q1 release
- Confident on international sales
Brown-Forman uncertain on US spirits market
Brown-Forman has said that the US spirits market proved more sluggish than expected in its first fiscal quarter, as the Jack Daniel whiskey distiller's share price fell on its cautious outlook.
Sales for Jack Daniel and Finlandia vodka outside of the US helped Brown-Forman to a 3% rise in like-for-like sales in the three months to the end of July. However, El Jimador Tequila aside, the firm suffered declines on major brands, including Southern Comfort, in its main US market as consumers continued to reign in their spending.
Brown-Forman's share price fell by 5% on the New York Stock Exchange today (1 September) after the group said it remained cautious on the US spirits market outlook. It also reported an 8% drop in profits in the first quarter.
"It's a sluggish environment out there," said Don Berg, Brown-Forman's chief financial officer. Commenting on the US, he told analysts on a conference call: "It was maybe a little softer environment than we were hoping for. But, I don't think it's a dramatic difference. We were hoping that trends we were seeing in those winter and spring months would continue, but there's been lot of difficult economic news out there in the media."
The firm said there was uncertainty about what would happen on the US spirits market. "We haven't seen any big uptick that says there's some acceleration on the way," said group CEO Paul Varga.
Brown-Forman generally benefitted from an upturn in sales outside of the US during the quarter and the firm hailed its new distribution agreement in Russia, as well as its decision to go solo in Germany and Brazil, as key to that growth.
Berg said that the group's decision to go it alone in Germany and Brazil has led to a greater focus on the whole portfolio, not just on Jack Daniel. "What we've found before is that everyone's excited about Jack. [But] when you get into the missionary work to build a brand from scratch, it takes a lot of work to get an agency partner to put that kind of sweat equity into a brand that they don't own," Berg said.
Brown-Forman today reconfirmed its earnings per share guidance for the fiscal full-year, of a range of between $2.98 and $3.38. It said that it expects operating profits to rise in mid single-digits for the year, despite a 10% drop in the first quarter.
However, it added: "Many uncertainties persist including potential improvements or deterioration of the global economic and consumer environments, predominantly as they relate to the US market and the Southern Comfort brand."
The group added that it "sees no reason" to increase marketing spend as a percentage of sales.
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