Driven by solid top-line growth, prudent cost management and lower effective tax rate, Brown-Forman Corporation (BF.B) reported strong bottom-line results for the third quarter of fiscal 2014. Earnings per share came in at 82 cents, which rose 13% year over year and beat the Zacks Consensus Estimate of 75 cents.
Net sales increased 5% year over year to $1,078 million. Moreover, after deducting excise taxes, sales came in at $782 million, up 4.5% from the prior-year figure of $747 million. The rise was primarily driven by strong demand for whiskey across the regions where the company operates and its geographical expansion initiatives. On an underlying basis, the company’s net sales increased 8%. The Zacks Consensus Estimate for the quarter was $782 million.
In the quarter, Brown-Forman’s gross profit increased 5% to $532 million from $507 million in the year-ago comparable quarter. However, gross margin remained flat at 49.3% as the benefit of increased sales and lower cost of sales as a percentage of net sales were fully offset by higher excise taxes as a percentage of net sales.
Selling, general and administrative expenses (SG&A) dropped 1% from the year-ago quarter to $161 million while as a percentage of net sales, it leveraged 90 basis points (bps) to 14.9%. However, advertising expenses increased 5% year over year to $116 million.
Operating profit rose 7% year over year to $255 million from $237 million in the prior-year period. Operating margin expanded 50 bps to 23.6% from 23.1% in the year-ago quarter, primarily due to lower operating expenses as a percentage of sales.
Balance Sheet & Cash Flow
Brown-Forman ended the quarter with cash and cash equivalents of $287 million and long-term debt of $997 million. During the first three quarters of fiscal 2014, Brown-Forman, which competes with Beam Inc. (BEAM) and Boston Beer Company Inc. (SAM), generated $390 million of cash from operations, against $367 million in the comparable period of the previous fiscal. During the first nine-month period of fiscal 2014, the company returned $171 million to shareholders through dividend payouts.
Fiscal 2014 Guidance
Bolstered by better-than-expected third-quarter results, Brown-Forman raised its fiscal 2014 outlook. The company now expects fiscal 2014 earnings in the range of $2.95–$3.05 per share, up from the previous forecast of $2.80–$3.00. Currently, the Zacks Consensus Estimate stands at $2.96 per share. Moreover, the company projects a rise in operating income in the low double-digit range against the earlier projection of 9%–11%. Further, Brown-Forman continues to expect underlying sales to increase in the high single-digit range.
Other Stocks to Consider
Currently, Brown-Forman carries a Zacks Rank #3 (Hold). A better-placed stock in the beverages-alcohol industry is Constellation Brands Inc. (STZ) with a Zacks Rank #2 (Buy).
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