Shares of Brown-Forman Corporation BF.B have been rallying, driven by an impressive surprise history and a positive outlook for fiscal 2018. Further, the company is favored due to its solid brand portfolio, expansion plans and shareholder-friendly moves.
This led to an upsurge in the stock price. Notably, this Zacks Rank #3 (Hold) stock has rallied 23.5% in the past year, outperforming 1.1% growth recorded by the industry.
Robust Surprise Trend
Brown-Forman has delivered an earnings beat in the trailing four quarters, with an average of 11.7%. Further, the company reported year-over-year earnings and sales growth in fourth-quarter fiscal 2018. Also, it was the seventh straight quarter of growth in underlying sales, driven by persistent momentum in its focus categories and strength in Jack Daniel’s, led by premium American whiskey portfolio. Further, net sales gained from balanced growth across geographies and the company’s portfolio.
Favorable Outlook
Looking ahead, the company is confident of capitalizing on its strategy for American Whiskey while benefiting from investments in its brands’ portfolio over the years. Consequently, the company expects to deliver yet another strong year, with solid earnings in fiscal 2019, backed by strength in its business and gains from the tax reform.
In fiscal 2019, the company estimates earnings per share of $1.75-$1.85 per share, reflecting 18-25% increase. This includes the tax rate of 21% and negative impact of 5 cents from higher interest expenses, foreign exchange and expected changes in inventories. Moreover, the company projects underlying sales growth of 6-7%.
Expansion Plans Bode Well
Brown-Forman plans to expand Jack Daniel's market share in developed markets, including France and the United States, and in emerging markets like Russia, Poland and Mexico, where the whiskey category is in the early stages of development. The company is on track to expand the sphere of its brands, such as Jack Daniel's Tennessee Honey, Jack Daniel’s Fire, Gentleman Jack and Jack Daniel's Single Barrel, all within Jack Daniel’s portfolio.
Further, the company has entered the fastest-growing spirit category — Irish whiskey — with the purchase of all the shares of Slane Castle Irish Whiskey Limited in Ireland. In another development, the company acquired two historic properties at West Main Street in Louisville, KY, to boost its Old Forester brand.
Will Jack Daniel’s Price Hike in Europe Hurt Performance?
While the above discussion clearly shows the company’s solid performance, the recent imposition of 25% tariff increase on U.S. whiskeys is a concern for the American spirits suppliers, particularly Brown-Forman. The tariff hike, which is in retaliation to the Trump administration’s decision to impose tariffs on European steel and aluminum, is likely to result in 10% increase in prices for Brown-Forman’s Jack Daniel’s Tennessee whiskey in Europe. The price increase, which is likely to take effect after a couple of months, is anticipated to lower demand and imports of Jack Daniel’s in Europe. This could significantly impact the company’s top line as Europe accounts for nearly one-fourth of its revenues.
The anticipation of such tariffs in the pipeline and the final announcement has shown a visible impact on the stock price of Brown-Forman. The company has declined nearly 3% yesterday while the stock has decreased 14.9% in the past month.
Bottom Line
Though concerns regarding the tariff increase remain, Brown-Forman’s ongoing strategies provide visibility for growth in the future.
Do Beverages-Alcohol Stocks Grab Your Attention? Check These
Some better-ranked stocks in the Beverages-Alcohol industry include Kirin Holdings Co. KNBWY, sporting a Zacks Rank #1 (Strong Buy), as well as The Boston Beer Company Inc. SAM and Craft Brew Alliance, Inc. BREW, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kirin Holdings has increased nearly 28.8% in the past year. The company has long-term earnings growth rate of 10%.
Boston Beer has gained 61.5% in the last three months. It has long-term earnings growth rate of 9.5%.
Craft Brew Alliance has moved up 19.8% in the past year. The company has delivered a positive earnings surprise of 246.7% in the trailing four quarters.
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