Brown-Forman Profit Falls 3.8%--Update

By Tripp Mickle

Brown-Forman Corp. on Wednesday reported lower profit and revenue for the fiscal second quarter as weakening foreign currencies and rising competition in the U.S. cut into results.

The maker of Jack Daniel's Tennessee Whiskey and Tequila Herradura said underlying sales in the U.S., its largest market, slowed to around 4% in the three months ended Oct. 31 from 10% in the prior quarter. Sales of Jack Daniel's brands have faced increased competition from Beam Suntory Inc.'s Jim Beam bourbon and Diageo PLC's Crown Royal Regal Apple, which have posted strong growth in recent months.

The U.S. results were offset by strong sales of Jack Daniel's in emerging markets such as Russia, which grew more than 10%, and developed markets such as Germany and Australia, which grew around 5%. About 60% of Brown-Forman sales come from overseas.

Stripping out currency impacts, sales of Jack Daniel's are up 7% in the six months ended Oct. 31.

Overall, revenue fell 3.4% from last year's second quarter to $1.1 billion, largely as a result of currency fluctuations that reduced earnings by about 7 cents per share to 97 cents. Profit fell 3.8% to $200 million from $208 million.

Despite reporting a sales decline for the second consecutive quarter, the Louisville, Ky.-based company affirmed its full-year guidance for underlying sales growth of 6% to 7% and earnings per share of $3.40 to $3.60. But it anticipates that foreign-currency fluctuations will negatively affect results by 5 cents per share.

Analysts differed in their opinion on Brown-Forman results. Citi analyst Wendy Nicholson wrote that Brown-Forman's "solid growth overseas will continue and enable" it to meet its full-year targets, but J.P. Morgan analyst John Faucher said "weaker underlying sales performance will drive the stock lower."

The company's shares fell 1.3% in afternoon trading to $102.53. The stock has risen almost 17% this year.

"There is nothing easy about the current business environment--not that we ever expect it to be easy," Brown-Forman Chief Executive Paul Varga said during a call with analysts. "At a time when the threat and reality of global terrorism is increasing, emerging-market economies have softened somewhat and industry competition has intensified, particularly on the innovation front in the United States, I feel our underlying business continues to perform very well and notably very consistently."

Flavored whiskey has boosted Brown-Forman sales in past quarters, but results in the second quarter were mixed. Jack Daniel's Tennessee Fire, which the company introduced last year, contributed about 1.5 percentage points of underlying sales growth, but underlying sales of Jack Daniel's Tennessee Honey slowed to 14% in the first half of the year from 18% in the first quarter.

Mr. Varga said Tennessee Honey's slowdown reflected increased competition from an expanding flavored-whiskey category that now includes apple products. He said Brown-Forman would address that challenge by increasing its marketing behind Tennessee Honey in the U.S. and increasing sales overseas.

Brown-Forman benefited in the second quarter from rising sales of higher-priced brands such as Woodford Reserve bourbon and Herradura tequila, which are up 28% and 7%, respectively, through the first half of the year. Sales of the company's lower-priced brands such as Finlandia vodka and Canadian Mist whiskey declined 2% and 8%, respectively, through the first half of the year.

Anne Steele contributed to this article

Write to Tripp Mickle at Tripp.Mickle@wsj.com

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(END) Dow Jones Newswires

December 02, 2015 14:25 ET (19:25 GMT)

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