Brown-Forman Beats on Q4 Earnings - Analyst Blog

Driven by solid top-line growth, prudent cost management and lower effective tax rate, Brown-Forman Corporation (BF.B) reported strong financial results for the fourth quarter and full fiscal 2014, wherein its bottom-line result for both the periods registered a robust year over year improvement as well as surpassed the Zacks Consensus Estimate.

Earnings for the fourth quarter came in at 62 cents per share, rising 17% year over year and beating the Zacks Consensus Estimate of 59 cents per share. Moreover, the company's fiscal 2014 earnings soared 11% year over year to $3.06 per share and were ahead of the Zacks Consensus Estimate of $3.02 per share.

Net sales for the fourth quarter increased 3% year over year to $893 million. Moreover, after deducting excise taxes, sales came in at $689 million, up 4.4% from the prior-year figure of $660 million. The rise was primarily driven by strong demand for whiskey across the regions where the company operates along with its geographical expansion initiatives. The Zacks Consensus Estimate for the quarter was $703 million.

Net sales for the full fiscal increased 4% year over year to $3,946 million. Moreover, after deducting excise taxes, sales came in at $2,991 million, up nearly 5% from the prior-year figure of $2,849 million. The Zacks Consensus Estimate for the quarter was $3,001 million.

Quarter in Detail

In the quarter, Brown-Forman's gross profit increased 7% to $493 million from $460 million in the year-ago comparable quarter primarily due to lower cost of sales as well as lesser excise tax paid. Consequently, gross margin improved 210 basis points (bps) to 55.2%.

Selling, general and administrative expenses (SG&A) increased 15% from the year-ago quarter to $207 million while advertising expenses increased 7% year over year to $166 million.

Operating profit rose 7% year over year to $189 million from $177 million in the prior-year period. Operating margin expanded 70 bps to 21.1% from 20.4% in the year-ago quarter as the benefit from improved gross margin was partially offset by higher operating expenses as a percentage of net sales.

Balance Sheet & Cash Flow

Brown-Forman ended the fiscal with cash and cash equivalents of $437 million and long-term debt of $997 million. During fiscal 2014, Brown-Forman, which competes with Diageo DEO, generated $649 million of cash from operations, against $537 million in the previous fiscal. During the fiscal, the company returned $280 million to shareholders through dividend payments of $233 million and share repurchase worth $47 million.

Fiscal 2014 Guidance

Bolstered by better-than-expected fiscal 2014 performance, Brown-Forman expects the growth story to continue in Fiscal 2015 driven by solid worldwide demand for American whiskey. Therefore, the company anticipates the underlying and reported sales will grow in the range of 6% to 8% in fiscal 2015.

Moreover, operating income is expected to increase in the band of 9% to 11% on an underlying as well as reported basis. Based on the above expectations, the company projected earnings to be in the band of $3.25 to $3.45 per share for fiscal 2015. Currently, the Zacks Consensus Estimate for Brown-Forman stands at $3.30 per share.

Other Stocks to Consider

Currently, Brown-Forman carries a Zacks Rank #4 (Sell). However, some better-placed stocks in the beverages-alcohol industry are Constellation Brands Inc. STZ and Molson Coors Brewing Co. TAP, both carrying a Zacks Rank #2 (Buy).