Brown-Forman: The Party’s Not Over Yet

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When it comes to providing a product that consumers crave the world over, alcoholic beverage maker Brown-Forman (BF-B) has few rivals. Despite a dip in BF-B shares following Wednesday’s earnings report, I expect that this holiday season the stock’s prospects will only become more festive.

glass of whisky 630 whiskey

Louisville-based Brown-Forman is one of the largest U.S.-based makers and marketers of spirits and wines. The company’s stable of iconic brands reads like the menu in a stocked liquor cabinet: Jack Daniel’s, Southern Comfort, Finlandia, Canadian Mist, Korbel Champagne and Sonoma-Cutrer, among others.

The company’s marketing reach is vast and extends into North America, Europe, Australia, Mexico, Brazil, Japan, Korea, Russia and South Africa.

A Mixed Earnings Report

On Wednesday, Brown-Forman disappointed investors when it reduced its full-year earnings guidance due to concerns that the strong dollar would hurt results. Shares fell 4% to $92.25 and were slipping in Thursday morning trading as well. But year-to-date, BF-B stock is still up more than 20%. To me, this recent pullback looks like a potential buying opportunity for long-term investors.

Quarterly results weren’t bad. Revenue in its fiscal second quarter reached $1.14 billion, an increase of 5% compared to the same period a year ago. For the first six months of the fiscal year, revenue jumped 4% versus the prior year. Second quarter earnings came in at $208 million and earnings per share (EPS) at 98 cents. That was a year-over-year increase of 1%. For the first half of the year, earnings increased 2% to $358 million for EPS of $1.68.

Brown-Forman’s strategic efforts to boost efficiency, slash costs and expand into emerging markets should continue to pay off over the long run. The company will also be pushing its popular cinnamon-flavored whiskey, Jack Daniel’s Tennessee Fire, which it plans to roll out across the United States nationwide in the spring of 2015.

Economic recovery, combined with the holidays and the company’s presence in growing markets, should continue to drive BF.B stock. Drinkers in developing nations are eager to emulate Western lifestyles. They thirst for well-known brands, such as Jack Daniel’s, that carry cache.

Brown-Forman has an edge right now over major competitor Diageo (DEO), which has struggled from bad decisions. Notably, Diageo recently bought from its China-based partner a controlling stake in the Shui Jing Fang premium brand of baijiu, a potent beverage similar to to sake. The company bet big, but it was forced to take a loss due to the Chinese government’s new anti-extravagance measures, which have hit liquor sales in the Middle Kingdom.

Methodical Expansion

Brown-Forman, meanwhile, has expanded methodically in its reliable home base of the U.S. For example, the company has slowly rolled out Tennessee Fire despite its high hopes for strong sales.

This month, the company is testing Tennessee Fire in four major U.S. airports, to gauge the drink’s popularity with consumers from overseas. Meanwhile, sales of Jack Daniel’s Tennessee Honey jumped 39% during the first six months of the fiscal year and should continue rising, especially with younger drinkers and women who show a penchant for flavored drinks.

With a global presence, a cautious but assertive product expansion, increasingly favorable economic conditions and a holiday season underway, Brown-Forman can be expected to post intoxicating growth for the rest of this year and beyond.

As of this writing, John Persinos did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/brown-forman-bf-b/.

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