Brown Forman Says it Will Deal With Retaliatory Tariffs on Case-by-Case Basis Due to Regional Dynamics

Brown Forman (BF.A, BF.B), the maker of Jack Daniels Tennessee Whiskey, said it will deal with retaliatory tariffs on American whiskey on a country-by-country basis rather than taking a more broad-based approach as distribution channels vary by region.

The European Union, Canada and Mexico have all said they'd impose duties on American whiskey in retaliation for the Trump Administration putting levies on steel and aluminum imports into the US.

The United Kingdom accounted for 6% of the company's total sales in the 12 months that ended on April 30, while Germany composed 5%, France 4% and Poland 3% of sales. Mexico accounted for 5% of sales and Canada 1%, Brown Forman said.

Chief Operating Officer Lawson Whiting, who will become chief executive on Jan. 1, said during the company's conference call Wednesday the situation is "dynamic" and one that management has been watching closely. It's "dangerous" to make assumptions on how Brown Forman will respond since there are so many moving parts, he said.

"Our reaction will be largely (on a) market-by-market basis," he said. "What we mean by that is markets where we own route to market, which would be most of Europe -- most of the big markets in Europe -- we have a lot more flexibility and control over the situation. markets where we use third party distributors, it's a little bit more difficult."

Outgoing CEO Paul Varga, who's held the position since 2007, said on the call that "there's never a dull moment" at the company as in the past 12 months its endured acquisition rumors, US tax reform, a succession plan and the threat of retaliatory tariffs.

Brown Forman said sales grew 6% in fiscal 2018. Emerging market sales increased by 13%, sales in the US gained 5% and developed markets outside the US added 5%. The Jack Daniel's family of brands grew underlying net sales 6%, including 4% growth for Jack Daniel's Tennessee Whiskey.

Sales of its super-premium American whiskey brands grew by 15%, including a 22% increase for Woodford Reserve. Herradura and el Jimador sales grew by 19% and 9%, respectively. Underlying income was up 8% and the company said it returned $773 million to shareholders, including a $1-per-share special dividend.

Sales of Jack Daniel's Tennessee Whiskey surged to 13 million cases for first time in the company's history, Varga said.

The Kentucky Distillers Association said in a statement that bourbon is an $8.5 billion industry in Kentucky that employs 17,500 workers with an annual payroll of $800 million. Eric Gregory, the association's president, said in a statement that he hopes ongoing negotiations will help avoid a "costly trade war" that would hurt the industry.

Whiting said during Brown Forman's conference call that the company has moved some inventory into certain regions where it controls distribution channels. While the situation bears watching, the company has faced similar situations in the past, he said.

"It's going to be a bit surgical in the way we respond," Whiting said, "but know that we've lived through these dynamics before, whether they're rapid excise tax increases, which have happened periodically, we've had supply shortages, maybe you get a big FX swing -- all these dynamics that move prices around in a quick moment we've experienced before and we think we'll fight through again."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2016 All rights reserved. Unauthorized reproduction is strictly prohibited.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.