Jack Daniel's Maker Warns Emerging-Markets Pain Will Extend to Results -- Update
03 March 2016 - 9:25AM
Dow Jones News
By Tripp Mickle
Brown-Forman Corp. warned Wednesday that struggles in emerging
markets will hurt future results and said it would try to offset
that by shifting advertising and promotional support from areas
like Asia and Russia to more stable ones like the U.S. and
Europe.
The maker of Jack Daniel's Tennessee Whiskey is struggling in
those markets where softening economies have made it tougher for
consumers to buy its higher-priced American whiskeys. Sales in
those emerging markets declined 11% during the quarter ended Jan.
31, lowering the company's net sales 1% from a year earlier to
$1.08 billion and leading it to cut its earnings outlook for the
year.
The Louisville, Ky., company now expects net sales growth of 5%
for the fiscal year ending April 30, excluding foreign exchange and
trade inventory adjustments. That is down from earlier expectations
for 6%-to-7% sales growth. It lowered per-share earnings
expectations to between $3.32 and $3.42 from $3.40 to $3.60.
Chief Executive Paul Varga said the company remains committed to
emerging markets in the long term but plans to intensify efforts to
increase American whiskey sales in more stable economies.
"This does not imply some radical reallocation of resources or
exiting of investment positions in emerging markets," Mr. Varga
said. "It's more of a subtle shift in the expectations we will have
for where we are likely to derive our growth in the short
term."
The company will shift advertising and promotional spending from
emerging markets to developed markets, supporting priorities such
as its expansion of Jack Daniel's Tennessee Fire in the U.K. and
Australia and Herradura tequila in the U.S.
Weakness in emerging markets during the quarter was countered by
6% sales growth in the U.S., which accounts for about 40% of the
company's business. Strong U.S. sales of Jack Daniel's and
Tennessee Honey has helped the company deliver global sales growth
for the three quarters ended Jan. 31 of 4% and 11%, respectively,
excluding foreign exchange and trade inventory adjustments.
Overall, Brown-Forman reported a quarterly profit of $190
million, up 2% from $186 million a year earlier. The company said
its results were pressured by weaker foreign currencies,
particularly the British pound. Its lower forecast for the year
reflects a 6-cent impact from foreign currencies.
Mr. Varga said the results were "pretty solid," considering the
emerging-market struggles, this year's stock-market tumult, and the
Paris attacks in November, which briefly dampened restaurant and
bar sales in Europe.
The company expects to benefit in the coming quarters from its
recent sale of Southern Comfort and Tuaca to Sazarac Co. for $542
million. Mr. Varga said shedding Southern Comfort would help sales
staff focus more narrowly on Jack Daniel's. The Southern Comfort
sale will support a $1 billion share repurchase program
Brown-Forman announced in January. "This ends up being a
multidimensional benefit for us," Mr. Varga said.
Lisa Beilfuss contributed to this article.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
March 02, 2016 17:10 ET (22:10 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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