Optimistic Brown-Forman holds back on price increases as US tariff talks continue

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Brown-Forman will wait to push through price increases on its North American exports in case ongoing trade talks successfully roll back new tariffs.

Brown-Formans Jack Daniels portfolio helped drive growth for the company in Q1

Brown-Forman's Jack Daniel's portfolio helped drive growth for the company in Q1

Speaking yesterday, management said there is a chance that the levies, implemented by governments in Mexico, the EU and China in retaliation to US tariffs on goods including steel and aluminium, could be headed off. Subsequently, Brown-Forman will not raise prices in these regions at the current time.

"We have some positive news coming out with the trade discussions potentially happening," said CFO Jane Morreau, highlighting the US talks with Mexico and the EU. "We hope that they will reach successful completion, so we have determined that we're going to not take price increases right away in many of these markets."

Morreau added later that "we do intend on taking [increases] later in the year".

Brown-Forman's optimism over the tariffs comes despite US spirits industry fears that a duty increase could derail strong global growth for North American brown-spirits. In Brown-Forman's Q1 results yesterday, its North American spirits portfolio led growth for the company, with the Jack Daniel's stable up 10% in sales, and super-premium Woodford Reserve rising by 29%. The company noted that some of the growth for whiskey in Europe had been boosted by the tariffs, as wholesalers and retailers increased inventory levels in preparation.

A number of regions including China and the EU have increased tariffs on US goods including alcohol in retaliation to US president Donald Trump's levy hikes on steel, aluminium and other imports. In the EU, the increases mean tariffs on US whiskey now stand at 25%. However, because they are applied to the import price, any increase for consumers would be in the 5%-to-10% range.

Brown-Forman has been flagged as being highly exposed should the matter escalate. According to analysts at Societe Generale, the EU accounts for an estimated 20% of the group's US whiskey sales.

Meanwhile, Brown-Forman's incoming CEO, Lawson Whiting, said the company has created an emerging brands unit to focus on super-premium and on-premise spirits. The brands include Herradura, Old Forester, Sonoma-Cutrer, Slane Irish Whiskey, GlenDronach and BenRiach.

"In particular, we see significant opportunity for Gentleman Jack, Woodford Reserve, GlenDronach and BenRiach in many of our larger markets in Europe," said Whiting, who will replace current CEO Paul Varga at the start of next year. "We remain encouraged about the potential for better portfolio development across these developed markets and are making this a bigger priority for the organisation."

How did Brown-Forman perform in its fiscal-2019 Q1? - results data

Sectors: Company results, Spirits

Companies: Brown-Forman

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