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Here's How Brown-Forman (BF.B) is Placed Ahead of Q3 Earnings

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Brown-Forman Corporation BF.B is slated to release third-quarter fiscal 2021 results on Mar 3. This alcoholic beverage bigwig is likely to deliver revenue growth in the to-be-reported quarter. The Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $905 million, indicating an increase of 0.7% from the figure reported in the year-ago quarter.

Further, the consensus mark for the to-be-reported quarter’s earnings is pegged at 42 cents per share, suggesting a decline of 12.5% from the year-ago period’s reported figure. Earnings estimates for fiscal third-quarter earnings have moved south by a penny in the past seven days.

The company delivered an earnings miss of 2% in the last reported quarter. However, its earnings outperformed the Zacks Consensus Estimate by 4.9%, on average, in the trailing four quarters.

BrownForman Corporation Price and EPS Surprise

BrownForman Corporation Price and EPS Surprise
BrownForman Corporation Price and EPS Surprise

BrownForman Corporation price-eps-surprise | BrownForman Corporation Quote

Key Factors to Note

Brown-Forman has been benefiting from its efforts to capitalize on opportunities in the shift in consumption to at-home occasions, with increased investments in the off-premise and e-premise channels. The on-premise shutdown has boosted the sale of spirits in the off-premise and convenience formats, which is likely to have continued to aid fiscal third-quarter performance.

Further, the company has been witnessing accelerated demand trends in its spirits business in the past few months, as consumers have been experimenting with making cocktails and margaritas at home. The rise in the trend is expected to have boosted the demand for spirit-based RTD cocktails in third-quarter fiscal 2021.

Additionally, the company’s stringent cost-management initiatives are expected to have partly aided the bottom line in the to-be-reported quarter. Despite higher input and pandemic-related costs, Brown-Forman has been witnessing strong operating expense leverage, owing to its focus on cost management and lower advertising expenses. The decline in advertising investments can be attributed to the phasing of spending, a reduction in on-premise activations, and the cancellation of consumer events and sponsorships, given the current environment.

Moreover, it has been confident of capitalizing on its American Whiskey strategy and has been benefitting from investments in its brand portfolio.

However, headwinds in the on-premise channel, which represents nearly 20% of the company’s global business, have been hurting its sales performance in the past few quarters. Also, the Travel Retail business has been affected by travel bans and other restrictions.

On the last reported quarter’s earnings call, management expected no recovery in the Travel Retail business in the near term and anticipated a significant decline on a year-over-year basis throughout fiscal 2021. Further, it remained uncertain about the timing and strength in the recovery of the on-premise channel due to varied factors. In all, it did not predict the on-premise business to return to full capacity in fiscal 2021. The disruptions are likely to have affected the company’s top line in the to-be-reported quarter.

Also, management predicted gross margin pressures to continue, owing to higher input costs and channel mix shifts. Moreover, the company has been witnessing softness in the non-branded business due to lower used barrel demand and pricing. It predicted that the non-branded business, which is dominated by sales of used barrels, will continue to be a drag on sales throughout fiscal 2021. Further, it expects this business’s results to reflect the impacts of lower volumes and pricing in the fiscal third quarter.

What the Zacks Model Unveils

Our proven model conclusively predicts an earnings beat for Brown-Forman this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Brown-Forman carries a Zacks Rank #3 and an Earnings ESP of +1.42%.

Stocks With Favorable Combinations

Here are some other companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

The Hain Celestial Group, Inc. HAIN presently has an Earnings ESP of +1.10% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Purple Innovation, Inc. PRPL currently has an Earnings ESP of +4.76% and a Zacks Rank #3.

Ollie’s Bargain Outlet Holdings, Inc. OLLI has an Earnings ESP of +3.73% and a Zacks Rank #3 at present.

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