just On Call - Brown-Forman on the prowl for acquisitions

By | 10 June 2011

Brown-Forman continuing to seek opportunities to expand beyond US shores

Brown-Forman continuing to seek opportunities to expand beyond US shores

Brown-Forman is on the lookout for acquisitions that would boost the drinks maker's business outside of the US.

The Jack Daniel's distiller's CFO, Don Berg, has said that the group is scouting for potential targets. "We're continuing to look for opportunities that might help us with the rest of our portfolio outside the US," he told analysts yesterday (9 June).

Brown-Forman's net debt fell by 59% for the 12 months to the end of April, it announced in its full-year results yesterday. Meanwhile, group cashflow has improved following a 20% increase in operating profits, to $855m, which were partly boosted by the sale of Fetzer to Vina Concha Y Toro.

There is speculation that, following these developments, Brown-Forman's firepower for acquisitions has increased.

Berg said on a conference call that, historically, the company's net debt has always been low enough to provide it with firepower for acquisitions. "And so, in terms of the way that we look at acquisitions, they really haven't changed that much," he said.

"We tend to look at things that are more premium, that are growing, that has a potential to grow faster than the overall company's growth rates," he added.

Brown-Forman's full-year net sales rose by 6% on the previous year, to $3.4bn. While Jack Daniel's led the line, brands such as el Jimador and Herradura Tequilas, Woodford Reserve and Chambord also performed well.

The company said that it expects to achieve sales growth across all of its five geographic regions in the next year. However, uncertainty lingers over consumer confidence in the US.

Brown-Forman's CEO, Paul Varga, appeared cautious, despite signs that demand for premium spirits has improved in the US. "I think we would start to see improved rates of pricing growth as we deem the consumer's willing and responsive to it," said Varga, echoing comments made recently to just-drinks by Pernod Ricard's CEO, Pierre Pringuet.

Varga said that the group continues to see "a mixed bag" in the on-trade around the world. He added that demand this year "will be highly dependent on how the consumer reacts to [higher] fuel prices".     

In a note on spirits sales in US Control States, analyst group Sanford Bernstein said yesterday: "Brown Forman has been underperforming the broader market since September 2009, and is now declining at 0.6% versus market growth of 2.8%." Jack Daniel's and Southern Comfort, in particular, remain weak in the US.

However, Bernstein said that pricing trends in the market in general have continued to improve. "Momentum on premium brands continues to be positive following two years of decline," it said.

For a transcript of the Brown-Forman conference call, published by Seeking Alpha, click here.

Sectors: Company results, Mergers & acquisitions, Spirits

Companies: Brown-Forman, Jack Daniel’s, Pernod, Ricard, Southern Comfort

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