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Brown-Forman (BF.B) Q4 Earnings Miss Estimates, Sales Beat

Zacks Equity Research
·5 min read

Brown-Forman Corporation BF.B has reported fourth-quarter fiscal 2020 results, wherein earnings missed the Zacks Consensus Estimate but sales beat the same. Driven by the unprecedented impacts of the ongoing coronavirus outbreak, the company did not provide guidance for fiscal 2021.

Brown-Forman’s earnings per share of 27 cents fell 20% year over year and lagged the Zacks Consensus Estimate of 28 cents.

Net sales of $709 million beat the Zacks Consensus Estimate of $700.8 million but declined 5% on a reported basis. On an underlying basis, net sales declined 10%.

BrownForman Corporation Price, Consensus and EPS Surprise


BrownForman Corporation Price, Consensus and EPS Surprise
BrownForman Corporation Price, Consensus and EPS Surprise

BrownForman Corporation price-consensus-eps-surprise-chart | BrownForman Corporation Quote

Results have mainly been marred by the impacts of the coronavirus pandemic, which began to spread globally in the middle of March and continued throughout April. This led the company’s on-premise channel — representing 20% of its global business — and Travel Retail to come to a standstill. Prior to this, the impacts of the pandemic were felt on its Asia business, particularly China and Travel Retail. Consequently, in March, the company revised its fiscal 2020 outlook.

Meanwhile, it witnessed strong growth in the off-premise and e-premise channels in most of the developed markets due to increased at-home consumption and pantry loading, as nationwide lockdowns and government restrictions were imposed to curtail the spread of coronavirus.

Shares of Brown-Forman remained stable in the pre-market trading on Jun 9 due to its mixed results. Overall, the Zacks Rank #3 (Hold) company’s shares have gained 17.3% in the past three months compared with the industry’s growth of 4.9%.



Deeper Insight

For fiscal 2020, underlying sales were flat year over year, driven by significant disruptions across the globe due to the spread of COVID-19. On a geographic basis, underlying sales growth was the strongest in the United States, its largest market, which recorded 5% growth. Meanwhile, the developed international and emerging markets each reported a 1% decline in underlying sales. Growth in the United States was partly driven by the launch of Jack Daniel’s Tennessee Apple in the fall of 2019, offset by soft growth in the fiscal fourth quarter, owing to the pandemic. Additionally, it witnessed double-digit gains in underlying net sales in aggregate for Woodford Reserve, Old Forester, Jack Daniel’s RTDs, Herradura and el Jimador in the United States.

Growth across the company’s brand portfolio was led by premium bourbon brands, including Woodford Reserve and Old Forester, which reported 21% growth in underlying net sales in fiscal 2020. This growth was led by a 19% rise in underlying sales for Woodford Reserve along with even stronger underlying growth from Old Forester.

Meanwhile, its tequila brands reported a 2% rise in underlying sales growth globally, including a 7% increase for Herradura and 5% for el Jimador. Further, underlying net sales for the Jack Daniel’s family of brands were flat globally as gains from Jack Daniel’s Tennessee Apple, Jack Daniel’s RTDs and Jack Daniel’s Tennessee Honey were offset by declines in Jack Daniel’s Tennessee Whiskey.

However, underlying sales for the company’s non-branded business, comprising used barrels, bulk whiskey and contract bottling, declined 29% on lower used barrel demand and pricing, and a reduction in bulk whiskey sales.

Margins & Costs

In the fiscal fourth quarter, Brown-Forman’s gross profit declined nearly 6% to $453 million, while gross margin contracted 90 basis points (bps) to 63.9%. On an underlying basis, gross profit declined 13%.

Selling, general and administrative (SG&A) expenses rose 3% year over year to $167 million on a reported basis and 6% on an underlying basis. Advertising expenses of $75 million declined 19% on a reported basis and 17% on an underlying basis.

Operating income declined 18% to $187 million on a reported basis and 27% on an underlying basis. Meanwhile, operating margin contracted 420 bps to 26.4%.

Balance Sheet & Cash Flow

Brown-Forman ended fiscal 2020 with cash and cash equivalents of $675 million, and long-term debt of $2,269 million. Its total shareholders’ equity was $1,975 million as of Apr 30, 2020. In fiscal 2020, it generated $724 million in cash from operating activities.

On May 21, the company declared a quarterly cash dividend of 17.43 cents per share on Class A and Class B shares, reflecting an annualized dividend rate of 69.72 cents. The dividend is payable Jul 1, 2020, to shareholders of record as of Jun 8.

Looking for Better-Ranked Beverage Stocks? Check These

Reeds, Inc. REED has a long-term earnings growth rate of 20%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands Inc STZ, a Zacks Rank #2 (Buy) stock, has a long term earnings growth rate of 1.5%.

The Boston Beer Company, Inc. SAM has delivered a positive earnings surprise of 4.7%, on average, in the trailing four quarters. It currently has a Zacks Rank #2.

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