BF.B Brown Forman Corp

Brown-Forman Corporation (BF.B), one of the leading producers and distributors of premium alcoholic beverages in the world, is scheduled to report its fourth-quarter and fiscal 2012 financial results before the opening bell on June 6, 2012.

The current Zacks Consensus Estimate for the quarter is 76 cents per share. For the quarter under review, revenue is expected to be $805 million, according to the Zacks Consensus Estimate.

For fiscal 2012, the Zacks Consensus Estimate stands at $3.59 per share while revenue is expected to be $3,453 million.

Third-Quarter 2012 - A Synopsis

Brown-Forman reported earnings of 93 cents per share for third-quarter 2012, missing the Zacks Consensus Estimate of $1.00 and declined approximately 3.1% from the year-ago earnings of 96 cents. Higher input and fuel costs coupled with increased operating expenses affected the company’s bottom line.

Brown-Forman's net sales remained almost flat year over year at $959 million. As per the company, the distributors piled up the inventories in anticipation of a price rise during the second quarter, which was the main reason for flat third-quarter sales.

Guidance for Fiscal 2012

In anticipation of a solid improvement in consumer trends during the last quarter of fiscal 2012, Brown-Forman expects high-single digit growth in net sales and operating income. However, it anticipates that the stronger U.S. dollar value may have an adverse impact on its bottom line. Accordingly, the company narrowed its earnings guidance range at the time of third-quarter earnings release. Currently, Brown-Forman expects fiscal 2012 earnings in the range of $3.50 to $3.65 per share instead of $3.45 to $3.70.

Zacks Consensus

The analysts following the stock expect Brown-Forman to post fourth-quarter 2012 earnings of 76 cents a share, lower than 80 cents delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between 71 cents and 77 cents a share.

For fiscal 2012, the Zacks Consensus Estimate stands at $3.59 per share, higher than the year-ago fiscal earnings of $3.57. The current Zacks Consensus Estimate ranges between $3.55 and $3.60 per share.

Agreement of Estimate

For the fourth quarter of fiscal 2012, of the 7 analysts covering the stock, only 1 analyst revised its estimates upward, while none have revised their estimates in the downward direction, over the last 30 days. For full fiscal 2012, 1 analyst revised their estimate downward, while none revised in the opposite direction, in the last 30 days.

In the last 7 days, no movement in estimates has been noticed in either direction either for fourth-quarter 2012 or fiscal 2012.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Brown-Forman depicts a neutral outlook for the upcoming fourth quarter and fiscal 2012. Over the last 7 days, estimates for the upcoming quarter and fiscal 2012 have remained unchanged at 76 cents and $3.59 per share, respectively.

However, in the last 30 days, estimates for the upcoming fourth quarter moved up by a penny to 76 cents per share while they remain unchanged at $3.59 for fiscal 2012.

Surprise History

With respect to earnings surprises, Brown-Forman has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 7% to positive 25%. The average remained a positive 5.2%. This suggests that Brown-Forman has surpassed the Zacks Consensus Estimate by an average of 5.2% in the trailing four quarters.

Our Recommendation

Brown-Forman is one of the leading producers and distributors of premium alcoholic beverages in the world. The company commands a strong portfolio of globally recognized brands, such as Jack Daniel’s, Finlandia, Southern Comfort and Canadian Mist. We believe this provides a competitive edge to the company and bolsters its well-established position in the market.

Moreover, we believe Brown-Forman’s strategy of expanding Jack Daniel's market share in developed markets, such as France and the U.S., and emerging markets including Russia, Poland and Mexico, where the whiskey category is in early stages of development will boost its top line.

However, apart from macroeconomic headwinds, distilled spirits are subject to excise tax in various countries. Rising fiscal pressure in the U.S., European and many emerging markets may lead to increasing risk of a potential excise tax on spirits by the governments of respective countries. The effect of any excise tax increase in future may have an adverse effect on Brown-Forman’s financial performance.

Above all, the company faces intense competition from other well-established players in the industry, including Beam Inc. (BEAM), Constellation Brands Inc. (STZ) and Diageo plc (DEO). Moreover, Brown-Forman also encounters competition from local and regional players in the respective countries. Consequently, this may dent the company’s future operating performance.

Currently, Brown-Forman has a Zacks #4 Rank, which implies a short-term Sell rating. However, we maintain a long-term Neutral recommendation on the stock.

 
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