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Brown-Forman's Strategic Initiatives Show Potential

Zacks Equity Research

On Jul 4, 2014, we issued an updated research report on Brown-Forman Corporation (BF.B) following the company's strong fourth-quarter fiscal 2014 results.

We are optimistic about this alcoholic-beverage company after it posted fourth quarter earnings per share of 62 cents, which handily surpassed the Zacks Consensus Estimate of 59 cents and rose 17% year over year. The strong bottom-line results were primarily attributable to solid top-line growth, prudent cost management and lower effective tax rate.

Brown-Forman reported net sales of $893 million, marking a rise of 3% from the prior-year quarter. After deducting excise taxes, sales came in at $689 million, up 4.4% from the prior-year figure of $660 million. The rise was primarily driven by strong demand for whiskey across the company’s operating regions along with its geographical expansion initiatives. The Zacks Consensus Estimate for the quarter was $703 million.

Further, bolstered by the better-than-expected fourth-quarter results, Brown-Forman expects the growth story to continue in fiscal 2015 driven by solid worldwide demand for American whiskey. Therefore, the company anticipates underlying and reported sales will grow in the range of 6% to 8% in fiscal 2015.

Moreover, operating income is expected to increase in the band of 9% to 11% on an underlying as well as reported basis. Based on the above expectations, the company projected earnings to be in the band of $3.25 to $3.45 per share for fiscal 2015.

Apart from strong fourth-quarter fiscal 2014 results and an impressive guidance for fiscal 2015, the company has been performing well on the back of brand building and inorganic growth strategies.

We expect the company’s growth momentum to continue, given its sustained focus on pricing, product innovation and penetration into the emerging markets, which will help in boosting its operational performance and strengthening its position. Moreover, we consider Brown-Forman’s constant focus on developing the premium Jack Daniel’s brand through innovation and changes in packaging to have paid off.

Other Stocks to Consider

Currently, Brown-Forman carries a Zacks Rank #2 (Buy). A better-ranked stocks in the beverages-alcohol industry is Boston Beer Inc. (SAM) which carries a Zacks Rank #1 (Strong Buy). Other stocks performing well in the sector include Constellation Brands Inc. (STZ) and Molson Coors Brewing Co. (TAP), both carrying a Zacks Rank #2.

Read the Full Research Report on BF.B
Read the Full Research Report on STZ
Read the Full Research Report on TAP
Read the Full Research Report on SAM

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