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Will Tariff Woes Hurt Brown-Forman's (BF.B) Q2 Earnings?

Brown-Forman Corporation BF.B is set to report second-quarter fiscal 2019 results on Dec 5, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 5.1%. Notably, this leading producer and distributor of premium alcoholic beverages delivered earnings and sales beat consecutively for the last five quarters. The company’s average positive earnings surprise for the trailing four quarters stands at 8.5%.

The question lingering in investors’ minds now is whether Brown-Forman will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the fiscal second quarter is 51 cents per share, reflecting growth of 2% from the year-ago quarter. We note that the Zacks Consensus Estimate for the fiscal second quarter remained unchanged in the last 30 days. The Zacks Consensus Estimate for revenues is pegged at $931.1 million, up nearly 1.9% from the year-ago quarter.

Brown-Forman Corporation Price and EPS Surprise


Brown-Forman Corporation Price and EPS Surprise | Brown-Forman Corporation Quote

The Brown-Forman stock has outperformed the industry in the past month, reflecting a positive sentiment ahead of the earnings release. The company’s shares have increased 4.6% while the industry grew 1.9%.



Factors at Play

Brown-Forman is favored due to its solid brand portfolio, positive surprise history, expansion plans and shareholder-friendly moves. The company is benefiting from solid growth in underlying sales, improved margins, strength in American whiskey and persistent momentum in focus categories. Further, balanced growth across geographies and its portfolio are aiding the top line.

The company is confident of capitalizing on its strategy for American Whiskey while benefiting from investments in its brands’ portfolio over the years. It believes that the global economic environment has improved in the past year, with favorable conditions in many emerging markets. This should position the company for growth in quarters to come.

Despite a strong start to fiscal 2019, the company believes intensified competition in the developed economies, alongside rising concerns of the recently enacted retaliatory tariffs on American whiskey, is likely to hurt near-term results. Consequently, it trimmed the earnings view for fiscal 2019 to reflect the anticipated impacts of the tariff imposition on its operating income.

It now estimates earnings per share of $1.65-$1.75 for fiscal 2019, reflecting 11-18% increase. Earlier, the company projected earnings per share of $1.75-$1.85, reflecting 18-25% increase. Additionally, underlying operating income is anticipated to increase 4-6% compared with the previous guidance of 7-9% growth.

What the Zacks Model Unveils

Our proven model does not conclusively show that Brown-Forman is going to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Brown-Forman’s Earnings ESP is 0.00% and it currently has a Zacks Rank #3 (Hold). Although the company has a favorable rank, which increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Stocks Poised to Beat Earnings Estimates

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

lululemon athletica, inc. LULU has an Earnings ESP of +1.87% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Caseys General Stores, Inc. CASY has an Earnings ESP of +6.17% and a Zacks Rank of 2.

Dollar General Corp. DG has an Earnings ESP of +1.62% and a Zacks Rank #3.

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Brown-Forman Corporation (BF.B) : Free Stock Analysis Report
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