The US drinks producer Brown-Forman today said its third quarter earnings per share were up 22% as performances from spirits brands Southern Comfort and Jack Daniel's offset a "substantial drop in earnings" for its wine division.

Earnings per share for the quarter ended January 31, 2003 were US$1.02 or $0.18 per share. Adjusted for business improvement costs, earnings for the quarter improved US$0.14 per share, or 16%.
IN a statement the company said: "Higher underlying profits reflected solid growth for Jack Daniel's and Southern Comfort, increased profitability in the United Kingdom from a new distribution arrangement, and benefits from a weaker U.S. dollar. Tempering growth was a substantial drop in earnings for Brown-Forman's wine business, which continues to suffer from higher costs and a very competitive pricing environment in the United States."

Brown-Forman warned in November that full-year earnings growth would be weaker than expected due to costs of its Finlandia Vodka investment and a faltering economy.

For the first nine months of the fiscal year, beverage revenues and gross profit were up 11% and 6%, respectively. The company now records excise taxes for its UK spirits sales in both revenues and cost of sales. This change had the effect of boosting year-to-date revenues for Brown-Forman's beverage segment by 4%, while lowering segment gross margins by 1.7 percentage points. Beverage advertising expenses were up 11%, as the company invested in core brand building activities.

Depletion and profit trends for Jack Daniel's Tennessee Whiskey remained solid for the first nine months of the fiscal year, with broad-based growth around the world. Volumes for Southern Comfort were essentially flat, as growth in both the United States and United Kingdom was offset by weakness in Continental Europe. However, higher margins for the brand resulted in record gross profit and operating income.

But profits from Fetzer and Bolla wines declined sharply for the nine months ended January 31, due to lower margins in the US. While Fetzer reported low single-digit depletion growth during this period, achieving that volume level required a reduction in net prices from the previous fiscal year. Bolla depletions were down slightly, although the combination of a weaker US dollar and significant cost increases for most Italian grape varietals have reduced profit margins dramatically. Korbel reported gross profit and depletion growth, as the brand continues to increase its market share in the U.S.

Looking forward, Brown-Forman said it reaffirmed its previously stated outlook for full year earnings per share growth of 6% to 10%, excluding any potential impact from the recently announced share repurchase.

"Looking beyond fiscal 2003, the company anticipates that the environment for wine and consumer durables will remain challenging. Brown-Forman expects that earnings will benefit, however, from cost savings resulting from business improvement investments made in 2002 and 2003, a full year of higher profits from our new U.K. distribution arrangement, and increased profits from stronger European currencies if exchange rates remain at current levels," the company said.