The US spirits producer and consumer goods group, Brown-Forman, posted a 14% decline in net income for the first quarter, hit by a charge related to a lawsuit settlement with Diageo and soft sales in its consumer durables division.

The company, which produces Jack Daniel’s and Southern Comfort, posted net income of US$31.1m, or 51 cents a share, for the first quarter of the current fiscal year, representing a fall of 14% from US$36.1m, or 53 cents a share, from the corresponding quarter last year.

The company said its sales of consumer goods had been soft in the first quarter and profits had also been hit by the settlement of a lawsuit over the distribution of Jack Daniel’s in the UK which had reduced earnings by 11 cents per share.

Diageo, whose contract to distribute JD expired in July 2002, had contended that it had the right to extend the contract for a further three years and claimed damages of between £35m and £42m. The companies settled with Brown-Forman paying Diageo £8.9m. Without the charge related to the lawsuit, net income would have been 62 cents a share.

However, that still would have been below analysts’ forecasts which had averaged at around 66 cents a share.

Sales in the quarter to the end of July increased by 11% from US$479.6m to US$532.6m. While sales of consumer goods fell by 8.8%, beverage turnover was up by 18% at US$423.7m. Brown-Forman also reported that profit from the beverage division rose by 16% on the back of the weaker dollar and the new distribution arrangements in the UK with Bacardi.

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The company confirmed its EPS forecast for the full fiscal year of US$4.10 to US$4.30, stating that growth in spirits sales, improved results from its wine operations and the weaker US dollar continued to support its outlook for the year.