Brown-Forman Corporation (BF.B) came up with its second-quarter fiscal 2015 results, wherein the company’s earnings of 97 cents per share climbed nearly 1% year over year, but fell short of the Zacks Consensus Estimate of $1.05. Brown-Forman’s results in the quarter were adversely affected by the foreign exchange.
Net sales for the second quarter increased 5.2% year over year to $1,135 million, backed by sales improvement witnessed in various brands, particularly its Jack Daniel’s trademark. Moreover, after deducting excise taxes, sales came in at $877 million, up 5.3% from the prior-year figure of $833 million. The Zacks Consensus Estimate for the quarter was $896 million.
Quarter in Detail
In the reported quarter, Brown-Forman’s gross profit increased 6% to $609 million from $576 million in the year-ago comparable quarter, primarily due to favorable price mix. Consequently, gross margin improved 30 basis points (bps) to 53.7%.
Selling, general and administrative expenses (SG&A) increased 10% from the year-ago quarter to $178 million with advertising expenses growing 11% year over year to $123 million, mainly due to the bad timing of the expenses.
Operating income slipped 3% year over year to $303 million, with the operating margin contracting 220 bps to 26.7%, as the benefit from improved gross margin was more than offset by higher expenses and the adverse foreign exchange impact.
Balance Sheet & Cash Flow
On Nov 20, 2014, the company announced an 8.6% hike in its quarterly dividend to 31.5 cents a share, payable on Dec 30 to shareholders of record as on Dec 4, 2014.
During the first half of fiscal 2015, Brown-Forman generated $70 million of cash from operations. Also, over the same period, the company repurchased 2.2 million shares for $203 million, bringing its previous authorization worth $250 million to an end. Further, on Oct 15, management approved a new share repurchase program, which permits Brown-Forman to buy back shares up to $250 million through Oct 14, 2015.
Brown-Forman, which competes with Constellation Brands Inc. (STZ), ended the second quarter with cash and cash equivalents of $235 million and long-term debt of $998 million. The company’s total shareholders’ equity stood at $2,075 million, as of Oct 31, 2014.
Mixed FY15 Guidance
On the assumption that the international market conditions will not worsen going forward, the company reaffirmed its fiscal guidance range of 6% to 8% growth in underlying sales. Moreover, operating income is still expected to increase in the band of 9% to 11% on an underlying basis.
However, the company anticipates foreign exchange headwinds to continue and hence, adversely affect results. Consequently, the company downgraded its earnings guidance to a band of $3.15–$3.35 per share for fiscal 2015, compared to $3.25–$3.45 per share projected earlier. Currently, the Zacks Consensus Estimate for Brown-Forman stands at $3.34 per share.
Overall, management remains satisfied with the company’s first half fiscal 2015 results even amid tough trading conditions. Looking ahead, the company remains optimistic on the back of the holiday season.
Other Stocks to Consider
Currently, Brown-Forman carries a Zacks Rank #4 (Sell). Some better-placed stocks in the beverages-alcohol industry are Boston Beer Co. Inc. (SAM) and Tsingtao Brewery Company Ltd. (TSGTY), each carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment