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Brown-Forman Corporation (BF.B - Free Report) reported a decent second-quarter fiscal 2017, wherein adjusted earnings of 50 cents a share rose 3% year over year and were in line with the Zacks Consensus Estimate.
Net sales declined 3% year over year to $830 million, after deducting excise taxes. However, on an underlying basis (excluding negative currency impact and other adjustments), sales grew 3%. Moreover, the company’s sales, before accounting for excise taxes, came in at $1,055 million, down 4% from the prior-year figure of $1,096 million. The Zacks Consensus Estimate was pegged at $834.4 million.
The fall in net sales was due to persisting currency headwinds, tough economic conditions in emerging markets and the divestiture of Southern Comfort and Tuaca in fiscal 2016. However, the company’s robust underlying performance came on the back of its strong portfolio of premium American whiskey brands, along with its Jack Daniel’s trademark.
Brown-Forman closed trade at $44.95 per share on Dec 6, falling a marginal 0.3% from the previous day. However, Brown-Forman has underperformed the Zacks categorized Beverages–Alcoholic industry, with its shares falling 9.5% year to date, compared with the industry’s 6% decline.
Quarter in Detail
Brown-Forman’s gross profit declined 6% to $552 million, while gross margin contracted 210 basis points (bps) to 66.5%.
Selling, general and administrative expenses fell 5% from the year-ago quarter figure to $163 million. Further, advertising expenses fell 6% year over year to $107 million.
However, the fall in operating expenses was not enough to offset the fall in gross profit. Consequently, operating income dropped 4% to $291 million, with operating margin contracting 30 bps to 35.1%. On an underlying basis, operating income of this Zacks Rank #4 (Sell) company increased 8%.
Balance Sheet & Cash Flow
Brown-Forman ended the quarter with cash and cash equivalents of $211 million, and long-term debt of $1,917 million. The company’s total shareholders’ equity was $1,283 million as of Oct 31, 2016.
During first-half fiscal 2017, the company generated $169 million of cash from operations.
On Nov 17, 2016, the company declared a regular quarterly dividend of 18.25 cents per share on its Class A and Class B shares, marking a 7.4% from its previous dividend rate of 17 cents per share. The dividend is payable on Jan 3, 2017, to shareholders on record as of Dec 2, 2016.
Additionally, Brown-Forman bought back about 9.3 million shares for $442 million in first-half fiscal 2017. With this, as of Oct 31, 2016, the company has authorization worth $448 million remaining under its current stock repurchase plan.
Fiscal 2017 Guidance
While the company expects the perils of currency headwinds and unstable emerging market conditions along with an uncertain global economic and geopolitical environment to linger, it remains confident of persistent growth in underlying net sales and operating income in fiscal 2017.
For fiscal 2017, management projects 4–5% increase in underlying sales. Further, underlying operating income is anticipated to increase in range of 6–8%.
Based on the aforementioned estimates and 5 cents negative influence from foreign currency headwinds, the company reiterated its fiscal 2017 earnings guidance of $1.71–$1.81 per share.
Some better-ranked stocks in the beverage industry include Embotelladora Andina S.A. (AKO.B - Free Report) , Tsingtao Brewery Company Limited (TSGTY - Free Report) and Pernod-Ricard SA .
Embotelladora Andina has witnessed an uptrend in estimates in the past 60 days and has a positive surprise history in the trailing four quarters. Moreover, the stock has surged nearly 29.1% year to date. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Tsingtao Brewery, a Zacks Rank #2 (Buy) stock, has jumped nearly 3% in the last three months. The stock has a long-term earnings growth rate of 7.3%.
Pernod-Ricard, also carrying a Zacks Rank #2, has a long-term earnings growth rate of 5.9%.
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Brown-Forman (BF.B) Posts In-Line Q2 Earnings; View Intact
Brown-Forman Corporation (BF.B - Free Report) reported a decent second-quarter fiscal 2017, wherein adjusted earnings of 50 cents a share rose 3% year over year and were in line with the Zacks Consensus Estimate.
Net sales declined 3% year over year to $830 million, after deducting excise taxes. However, on an underlying basis (excluding negative currency impact and other adjustments), sales grew 3%. Moreover, the company’s sales, before accounting for excise taxes, came in at $1,055 million, down 4% from the prior-year figure of $1,096 million. The Zacks Consensus Estimate was pegged at $834.4 million.
The fall in net sales was due to persisting currency headwinds, tough economic conditions in emerging markets and the divestiture of Southern Comfort and Tuaca in fiscal 2016. However, the company’s robust underlying performance came on the back of its strong portfolio of premium American whiskey brands, along with its Jack Daniel’s trademark.
Brown-Forman closed trade at $44.95 per share on Dec 6, falling a marginal 0.3% from the previous day. However, Brown-Forman has underperformed the Zacks categorized Beverages–Alcoholic industry, with its shares falling 9.5% year to date, compared with the industry’s 6% decline.
Quarter in Detail
Brown-Forman’s gross profit declined 6% to $552 million, while gross margin contracted 210 basis points (bps) to 66.5%.
Selling, general and administrative expenses fell 5% from the year-ago quarter figure to $163 million. Further, advertising expenses fell 6% year over year to $107 million.
However, the fall in operating expenses was not enough to offset the fall in gross profit. Consequently, operating income dropped 4% to $291 million, with operating margin contracting 30 bps to 35.1%. On an underlying basis, operating income of this Zacks Rank #4 (Sell) company increased 8%.
Balance Sheet & Cash Flow
Brown-Forman ended the quarter with cash and cash equivalents of $211 million, and long-term debt of $1,917 million. The company’s total shareholders’ equity was $1,283 million as of Oct 31, 2016.
During first-half fiscal 2017, the company generated $169 million of cash from operations.
On Nov 17, 2016, the company declared a regular quarterly dividend of 18.25 cents per share on its Class A and Class B shares, marking a 7.4% from its previous dividend rate of 17 cents per share. The dividend is payable on Jan 3, 2017, to shareholders on record as of Dec 2, 2016.
Additionally, Brown-Forman bought back about 9.3 million shares for $442 million in first-half fiscal 2017. With this, as of Oct 31, 2016, the company has authorization worth $448 million remaining under its current stock repurchase plan.
Fiscal 2017 Guidance
While the company expects the perils of currency headwinds and unstable emerging market conditions along with an uncertain global economic and geopolitical environment to linger, it remains confident of persistent growth in underlying net sales and operating income in fiscal 2017.
For fiscal 2017, management projects 4–5% increase in underlying sales. Further, underlying operating income is anticipated to increase in range of 6–8%.
Based on the aforementioned estimates and 5 cents negative influence from foreign currency headwinds, the company reiterated its fiscal 2017 earnings guidance of $1.71–$1.81 per share.
BROWN FORMAN B Price, Consensus and EPS Surprise
BROWN FORMAN B Price, Consensus and EPS Surprise | BROWN FORMAN B Quote
Stocks to Consider
Some better-ranked stocks in the beverage industry include Embotelladora Andina S.A. (AKO.B - Free Report) , Tsingtao Brewery Company Limited (TSGTY - Free Report) and Pernod-Ricard SA .
Embotelladora Andina has witnessed an uptrend in estimates in the past 60 days and has a positive surprise history in the trailing four quarters. Moreover, the stock has surged nearly 29.1% year to date. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Tsingtao Brewery, a Zacks Rank #2 (Buy) stock, has jumped nearly 3% in the last three months. The stock has a long-term earnings growth rate of 7.3%.
Pernod-Ricard, also carrying a Zacks Rank #2, has a long-term earnings growth rate of 5.9%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>