Brown-Forman Earnings Miss Estimates


Brown-Forman Corporation’s (BF.B) fiscal first-quarter 2014 (ended Jul 31, 2013) earnings of 66 cents a share lagged the Zacks Consensus Estimate of 72 cents. Moreover, earnings declined 4.3% from 69 cents reported in the year-ago quarter. The year-over-year decline in the bottom line was primarily due to higher input costs and increase in operating expenses.

Net sales inched up 2% year over year to $896 million primarily due to the strong demand of whiskey across all regions in which the company operates. On an underlying basis, the company’s net sales increased 5%. Moreover, the quarterly sales were well above the Zacks Consensus Estimate of $705 million.

During the quarter, Brown-Forman’s gross profit increased 3% to $477 million from $464 million reported in the year-ago quarter. Gross margin expanded 40 basis points (bps) to 53.3% compared with 52.9% in the prior-year period, primarily due to increased sales and lower excise taxes as a percentage of sales.

Selling, general and administrative expenses (SG&A) rose 5% from the year-ago quarter to $156 million. Advertising expenses surged 12% year over year to $103 million.

Operating profit during the quarter inched down 2% to $211 million from $217 million in the prior-year period.  Operating margin contracted 100 bps to 24.2% compared with 25.2% in the year-ago quarter, primarily due to higher SG&A and advertising expenses.

Balance Sheet & Cash Flow

Brown-Forman, which has a Zacks Rank #3 (Hold), ended the quarter with cash and cash equivalents of $217 million and long-term debt of $997 million. During the quarter, Brown-Forman, which competes with Beam Inc. (BEAM) and Constellation Brands Inc. (STZ), generated $93 million of cash from operations and deployed $54 million toward dividend payout.

Fiscal 2014 Guidance

Going forward, Brown-Forman reaffirmed its fiscal 2014 outlook. The company still expects fiscal 2014 earnings in the range of $2.80–$3.00 per share. Moreover, the company projects operating income to increase in the range of 9%–11%, while underlying sales are expected to rise in the high-single-digit range.

Other Stocks to Consider

The other stock worth considering in the beverages-alcoholic industry is Boston Beer Company Inc. (SAM), which carries a Zacks Rank #1 (Strong Buy).

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Read the Full Research Report on STZ

Read the Full Research Report on BEAM

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