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Jack Daniels Maker Brown-Forman Fails To Catch A Buzz After Q4 Report

Jack Daniels Maker Brown-Forman Fails To Catch A Buzz After Q4 Report

Shares of Brown-Forman Corporation (NYSE: BF-B), the company behind many notable alcohol brands, fell nearly 3 percent Thursday after the company's fourth-quarter earnings report fell short of expectations due to a stronger dollar and the sale of the Southern Comfort brand.

Q1 Positives

Brown-Forman's sales growth in the back half of the quarter accelerated 4 percent from a 2-percent growth in the first half of 2017, Deutsche Bank's Faiza Alwy explained in a research report. Meanwhile, a strong 7-percent growth in travel retail this year marked a rebound from 2016, which declined and was helped by incremental distribution of Woodford Reserve (check out Faiza Alwy's track record).

Meanwhile, new products remain on track for a rollout in the U.S., including Old Forester and Slane Irish whiskey this summer and Jack Daniels Rye in the fall, and other newly integrated single malt scotch brands.

Advertising and packaging innovation is also expected to grow premium whiskey sales while Jack Daniels is likely benefiting from exposure gained from a recent NBA deal.

As such the analyst has confidence in the company's 4- to 5-percent underlying fiscal 2018 sales growth rate.

Q1 Negatives

Despite Brown-Forman seeing a penny per share benefit to its EPS from lower taxes versus the analyst's model, the reported EPS still fell short of expectations. This was attributed to distributor inventory levels which had a negative 4 percent impact on sales.

Gross and operating margins also fell short of what the analyst was expecting due to lower reported sales, which cost savings programs should help moving forward.

The Bottom Line

Bottom line, the hard alcohol category remains "compelling" for the long-term however the analyst believes that much of the "latent growth is priced in at these levels."

Given the "unlikely" possibility of a corporate sale Alway maintains a Hold rating and $50 price target.

Related Links:

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Alcohol As A Pain Reliever?

Latest Ratings for BF.B

Aug 2018Deutsche BankMaintainsHoldHold
Mar 2015Stifel NicolausMaintainsBuy
Sep 2012UBSMaintainsBuy

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