We are maintaining our long-term Neutral recommendation on
Brown-Forman Corporation
(
BF.B
). Moreover, the company has a Zacks #3 Rank implying a short-term
Hold rating.
Battered by higher excise tax along with increased operating
expenses, Brown-Forman reported a weak fourth-quarter 2012 results
with earnings falling 5.2% to 73 cents per share, missing the Zacks
Consensus Estimate of 76 cents. Moreover, the company's net sales
of $801.3 million also fell short of the Zacks Consensus Estimate
of $805 million, but managed to register a year- over-year growth
of 1%.
Moreover,gross profit margin shrunk 90 basis points (bps) to
52.6% due to increased excise taxes, while higher advertising and
selling, general and administrative (SG&A) expenses led to a
contraction of 60 bps in operating margin to 19.6%.
However, Brown-Forman expects solid improvement in customer
trends in the remaining period of fiscal 2013. Moreover, based on
high-single digit growth expectation in net sales and operating
income, the company anticipates fiscal 2013 earnings in the range
of $3.60 to $4.00 per share.
Further, we believe Brown-Forman's strategy of expanding Jack
Daniel's market share in the 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. In addition, the company's plan to build new
cooperage for manufacturing barrels for Jack Daniel's Tennessee
Whiskey will facilitate it in continuing supply of this premium
whiskey along with its demand.
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. This
provides a competitive edge to the company and bolsters its
well-established position in the market.
However, continued macroeconomic headwinds and the resultant
cutback in discretionary spending along with intense competition
from other well-established players in the industry, including
Beam Inc.
(
BEAM
) and
Diageo plc
(
DEO
) may weigh upon the company's growth prospects.
BEAM INC (BEAM): Free Stock Analysis Report
BROWN FORMAN B (BF.B): Free Stock Analysis
Report
DIAGEO PLC-ADR (DEO): Free Stock Analysis
Report
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