Jack Daniel's RTD Australia

Bushfires, coronavirus & tariffs hit Brown-Forman’s bottom line

March 4, 2020
By Alana House

Brown-Forman is the latest drinks company to work coronavirus impact into its guidance. It has announced underlying operating income is expected to come in “flat to modestly declining” for the full year.

For the third quarter, the company’s reported net sales were essentially flat at $899 million (+3% on an underlying basis) compared to the same prior-year period. Reported operating income decreased 5% to $304 million (+5% on an underlying basis) and diluted earnings per share rose 2% to $0.48.

For the first nine months of the fiscal year, the company’s reported net sales increased 3% to $2.7 billion (+3% on an underlying basis). Reported operating income decreased 1% to $904 million (-1% on an underlying basis) and diluted earnings per share increased 4% to $1.45.

Lawson Whiting, the company’s President and Chief Executive Officer said: “Today, we revised our full-year outlook to reflect tempered expectations in some of our international markets as well as the increasingly uncertain global economic and geopolitical environment.

“While we are cautious regarding our near-term outlook, we continue to build our business, as we always have, for the long term. We believe the strength of our brands and the health of our balance sheet places Brown-Forman in a strong position both today and for the long term.”

Jack Daniel’s RTD sales down in Australia

Australia’s underlying net sales grew 1% (-2% reported) as gains from the super-premium American whiskey portfolio offset declines of Jack Daniel’s RTDs. 

Sustained double-digit growth of Jack Daniel’s RTDs contributed to growth in other markets, with solid underlying net sales.

Germany’s underlying net sales grew 5% (+6% reported) fueled by volume growth for Jack Daniel’s RTDs. France grew underlying net sales 3% (+3% reported) reflecting higher volumes of Jack Daniel’s Tennessee Honey and the launch of Jack Daniel’s RTDs, which were partially offset by declines of Jack Daniel’s Tennessee Whiskey.

“The Jack Daniel’s RTD business is now over 9 million cases globally and continues to deliver solid growth as the increasingly popular RTD format provides Jack Daniel’s consumers with convenience in their drinking occasions,” Whiting said.

However, he noted that its developed international market is having a “relatively weak fiscal ’20 as the UK, Australia and Japan are weighing on performance”.

CFO Jane Morreau added that the “devastating fires in Australia” have also contributed to sales growing less than expected.

In the United Kingdom, underlying net sales declined 7% (-9% reported) driven by softness in the cash and carry channel and short-term disruptions from changes to our promotional strategy and upcoming route-to-market transition.

How Brown-Forman is handling the coronavirus crisis

Brown-Forman remains optimistic about the Asian market despite the setback of the coronavirus.

“Our business in China has been growing underlying net sales at a double-digit rate since fiscal 2018, led in large part by our growing e-premise business where we have been focusing our investments in this market,” noted Morreau.

“Our performance through January had essentially not been affected by the coronavirus. So understandingly we do expect a marked slowdown in our fourth quarter in this market and other parts of Asia and have already experienced this in February.”

Whiting added: “For the first time in a while, Asia really has been delivering solid growth this year. However, these markets are likely to suffer in the near term as a result of the impacts from coronavirus. I am, however, very encouraged by how our brands are resonating with consumers. 

He also discussed how the company is mitigating employee risk.

“Like other companies, we’ve taken steps to limit our employees risk by limiting travel, canceling certain meetings, providing up to-date information from the CDC and the World Health Organisation and ensuring our flexible work policies are being utilized,” he said.

As for the state of the tariff situation, Morreau said: ‘The impact of retaliatory tariffs, particularly from Europe, will continue to weigh on our margins and profits for the full-year.

“However, the year-over-year effect began to ease a bit in our quarter three. In fact, our underlying gross profit grew for the quarter for the first time since the cost of tariffs began effecting us, up 3%, consistent with our topline.”

Brown-Forman celebrates 150 years

During an earnings call, Whiting said he wanted to take a moment to recognise “what a special time it is to be part of Brown-Forman as we enter our 150th year”.

Old Forester

“Back in 1870, our founding brand Old Forester, was first introduced into the US. Today, we now have a portfolio of over 40 premium and super premium brands sold around the globe. Since our founding, the company has been agile and resilient in navigating through many challenges, including things like prohibition, world wars and economic recessions, just to name a few historical events.

“Today, we find ourselves amid trade wars resulting in tariffs that are weighing on our industry, geopolitical events that are disrupting many countries around the world, and now a virus that is threatening the global economy. While the headwinds feel pretty strong right now, Brown-Forman has continued to grow throughout our history and remains a strong healthy company supported by the commitment of our long-term shareholders and importantly, our dedicated and talented employees around the world.”

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