) adjusted earnings of 73 cents per share for fourth-quarter 2012
missed the Zacks Consensus Estimate of 76 cents and declined
approximately 5.2% from the year-ago earnings of 77 cents. A higher
excise tax along with increased operating expenses affected the
company's bottom line.
Including the net effect of Hopland-based wine business, the
company's earnings were $1.13 per share during the fourth quarter
of fiscal 2011.
Brown-Forman's reported net sales inched up 1% to $801.3
million, missing the Zacks Consensus Estimate of $805 million.
However, the company's underlying net sales registered 10% growth
year over year.
During the quarter, Brown-Forman's gross profit inched down
marginally by 0.4% from the prior-year quarter to $421.8 million,
primarily due to increased excise taxes. Consequently, gross margin
contracted 90 basis points (bps) year over year to 52.6%.
During the quarter, the company made huge advertising expenses
and registered a decline of 1% to $98.6 million. Selling, general
and administrative expenses grew 5% year over year to $175.2
million. Consequently, Brown-Forman's adjusted operating profit
declined 2% from the prior-year quarter to $152.3 million, while
adjusted operating margin contracted 60 basis points to 19.6% from
the prior-year period.
Fiscal 2012 Summary
The company's net sales during the fiscal increased 6% to
$3,614.4 million compared with $3,404.3 million in fiscal 2011,
surpassing the Zacks Consensus Estimate of $3,453 million. However,
Brown-Forman's earnings of $3.56 per share during fiscal 2012 fell
short of the Zacks Consensus Estimate of $3.59 as well the previous
fiscal earnings of $3.57. Including the net effect of Hopland-based
wine business, the company's earnings were $3.90 per share during
Balance Sheet & Cash Flow
Brown-Forman ended the fiscal with cash and cash equivalents of
$338 million and long-term debt of $506 million (including the
current maturities) compared with $567 million and $759 million in
During fiscal 2012, Brown-Forman generated $516 million of cash
from operations and deployed $192 million for dividend payout, $220
million toward share repurchase, $58 million on capital
expenditures and $248 million toward debt repayment.
Moving forward, Brown-Forman expects improvement in customer
trends to continue in fiscal 2013. The company expects high-single
digit growth in net sales and operating income. However, it
anticipates that the stronger U.S. dollar value may have an adverse
impact on its bottom line.
Currently, Brown-Forman expects fiscal 2013 earnings in the
range of $3.60 to $4.00 per share. The current Zacks Consensus
Estimate for fiscal 2013 stands at $3.94 per share.
Brown-Forman is one of the leading producers and distributors of
premium alcoholic beverages in the world. The company commands a
strong portfolio of globally recognized brands, such as Jack
Daniel's, Finlandia, Southern Comfort and Canadian Mist. We believe
this provides a competitive edge to the company and bolsters its
well-established position in the market.
Moreover, we believe Brown-Forman's strategy of expanding Jack
Daniel's market share in developed markets, such as France and the
U.S., and emerging markets including Russia, Poland and Mexico,
where the whiskey category is in early stages of development will
boost its top line.
However, apart from macroeconomic headwinds, distilled spirits
are subject to excise tax in various countries. Rising fiscal
pressure in the U.S., European and many emerging markets may lead
to increasing risk of a potential excise tax on spirits by the
governments of respective countries. The effect of any excise tax
increase in future may have an adverse effect on Brown-Forman's
Above all, the company faces intense competition from other
well-established players in the industry, including
Constellation Brands Inc.
). Moreover, Brown-Forman also encounters competition from local
and regional players in the respective countries. Consequently,
this may dent the company's future operating performance.
Currently, Brown-Forman has a Zacks #4 Rank, which implies a
short-term Sell rating. However, we maintain a long-term Neutral
recommendation on the stock.
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