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Why Is Brown-Forman Corporation (BF.B) Down 11.6% Since Last Earnings Report?
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A month has gone by since the last earnings report for Brown-Forman Corporation (BF.B - Free Report) . Shares have lost about 11.6% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Brown-Forman Corporation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Brown-Forman has reported third-quarter fiscal 2020 results, wherein earnings and sales missed estimates. However, the bottom line improved on a year-over-year basis, while the top line remained flat. Further, the company revised its view for fiscal 2020, citing disruptions in international markets due to the coronavirus outbreak and an uncertain global economic environment.
Brown-Forman’s earnings per share of 48 cents increased 2% year over year but lagged the Zacks Consensus Estimate of 50 cents.
Net sales of $899 million missed the Zacks Consensus Estimate of $950 million and were flat on a reported basis. On an underlying basis, net sales rose 3%, driven by broad-based growth across geographies and the brand portfolio.
For the first nine months of fiscal 2020, underlying sales improved 3%, in line with growth witnessed in the first half. On a geographic basis, underlying sales growth was the strongest in the United States and emerging markets, each growing 6%. Growth in the United States was driven by continued double-digit gains from its premium bourbons, Woodford Reserve and Old Forester, and the launch of Jack Daniel’s Tennessee Apple. Additionally, it witnessed double-digit underlying net sales gains in aggregate from tequilas, Herradura and el Jimador, in the United States. Meanwhile, underlying net sales grew 2% in developed international markets.
Growth across the company’s brand portfolio was led by Woodford Reserve, which reported 19% underlying sales growth in the first nine months of fiscal 2020. Notably, underlying sales for its premium bourbon brands, including Woodford Reserve and Old Forester, grew 22%.
Meanwhile, its tequila brands reported 10% rise in underlying sales growth globally, including a 20% increase for Herradura and 11% for el Jimador. Further, underlying net sales for the Jack Daniel’s family of brands improved 3% globally, driven by the launch of Jack Daniel’s Tennessee Apple in the United States, Jack Daniel’s RTDs in Germany and the United States, and broad-based growth of Jack Daniel’s Tennessee Honey.
However, underlying sales for the company’s non-branded business, comprising used barrels, bulk whiskey and contract bottling, declined 27% on lower volumes and prices for used barrels and a reduction in bulk whiskey sales.
Margins & Costs
In the fiscal third quarter, Brown-Forman’s gross profit declined nearly 2% to $557 million, while gross margin contracted 120 basis points (bps) to 61.9%. On an underlying basis, gross profit increased 3%.
Selling, general and administrative (SG&A) expenses rose 2% year over year to $153 million, both on a reported and underlying basis. Advertising expenses of $104 million remained flat both on a reported and underlying basis.
Operating income declined 5% to $304 million on a reported basis but increased 5% on an underlying basis. Meanwhile, operating margin contracted 150 bps to 33.8%.
Balance Sheet & Cash Flow
Brown-Forman ended third-quarter fiscal 2020 with cash and cash equivalents of $276 million, and long-term debt of $2,293 million. Its total shareholders’ equity was $2,005 million as of Jan 31, 2020. In the first nine months of fiscal 2020, it generated $509 million in cash from operating activities.
On Jan 28, the company declared a quarterly cash dividend of 17.43 cents per share on Class A and Class B shares, reflecting an annualized dividend rate of 69.72 cents. The dividend is payable Apr 1, 2020, to shareholders of record as of Mar 9.
Fiscal 2020 Outlook
Brown-Forman revised its outlook for fiscal 2020, driven by lowered expectations in some of its international markets, owing to short-term disruptions, and an increasingly uncertain global economic and geopolitical backdrop. The revised view also includes impacts from the COVID-19 global epidemic.
For fiscal 2020, the company now expects low-single-digit underlying sales growth. It expects underlying operating margin to be flat to decline modestly. Further, earnings per share are envisioned to be $1.75-$1.80. Earlier, the company had projected earnings per share of $1.75-$1.85, with underlying sales growth of 5-7%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -18.1% due to these changes.
VGM Scores
Currently, Brown-Forman Corporation has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Brown-Forman Corporation has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Why Is Brown-Forman Corporation (BF.B) Down 11.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Brown-Forman Corporation (BF.B - Free Report) . Shares have lost about 11.6% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Brown-Forman Corporation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Brown-Forman Misses Q3 Earnings & Sales, Lowers View
Brown-Forman has reported third-quarter fiscal 2020 results, wherein earnings and sales missed estimates. However, the bottom line improved on a year-over-year basis, while the top line remained flat. Further, the company revised its view for fiscal 2020, citing disruptions in international markets due to the coronavirus outbreak and an uncertain global economic environment.
Brown-Forman’s earnings per share of 48 cents increased 2% year over year but lagged the Zacks Consensus Estimate of 50 cents.
Net sales of $899 million missed the Zacks Consensus Estimate of $950 million and were flat on a reported basis. On an underlying basis, net sales rose 3%, driven by broad-based growth across geographies and the brand portfolio.
For the first nine months of fiscal 2020, underlying sales improved 3%, in line with growth witnessed in the first half. On a geographic basis, underlying sales growth was the strongest in the United States and emerging markets, each growing 6%. Growth in the United States was driven by continued double-digit gains from its premium bourbons, Woodford Reserve and Old Forester, and the launch of Jack Daniel’s Tennessee Apple. Additionally, it witnessed double-digit underlying net sales gains in aggregate from tequilas, Herradura and el Jimador, in the United States. Meanwhile, underlying net sales grew 2% in developed international markets.
Growth across the company’s brand portfolio was led by Woodford Reserve, which reported 19% underlying sales growth in the first nine months of fiscal 2020. Notably, underlying sales for its premium bourbon brands, including Woodford Reserve and Old Forester, grew 22%.
Meanwhile, its tequila brands reported 10% rise in underlying sales growth globally, including a 20% increase for Herradura and 11% for el Jimador. Further, underlying net sales for the Jack Daniel’s family of brands improved 3% globally, driven by the launch of Jack Daniel’s Tennessee Apple in the United States, Jack Daniel’s RTDs in Germany and the United States, and broad-based growth of Jack Daniel’s Tennessee Honey.
However, underlying sales for the company’s non-branded business, comprising used barrels, bulk whiskey and contract bottling, declined 27% on lower volumes and prices for used barrels and a reduction in bulk whiskey sales.
Margins & Costs
In the fiscal third quarter, Brown-Forman’s gross profit declined nearly 2% to $557 million, while gross margin contracted 120 basis points (bps) to 61.9%. On an underlying basis, gross profit increased 3%.
Selling, general and administrative (SG&A) expenses rose 2% year over year to $153 million, both on a reported and underlying basis. Advertising expenses of $104 million remained flat both on a reported and underlying basis.
Operating income declined 5% to $304 million on a reported basis but increased 5% on an underlying basis. Meanwhile, operating margin contracted 150 bps to 33.8%.
Balance Sheet & Cash Flow
Brown-Forman ended third-quarter fiscal 2020 with cash and cash equivalents of $276 million, and long-term debt of $2,293 million. Its total shareholders’ equity was $2,005 million as of Jan 31, 2020. In the first nine months of fiscal 2020, it generated $509 million in cash from operating activities.
On Jan 28, the company declared a quarterly cash dividend of 17.43 cents per share on Class A and Class B shares, reflecting an annualized dividend rate of 69.72 cents. The dividend is payable Apr 1, 2020, to shareholders of record as of Mar 9.
Fiscal 2020 Outlook
Brown-Forman revised its outlook for fiscal 2020, driven by lowered expectations in some of its international markets, owing to short-term disruptions, and an increasingly uncertain global economic and geopolitical backdrop. The revised view also includes impacts from the COVID-19 global epidemic.
For fiscal 2020, the company now expects low-single-digit underlying sales growth. It expects underlying operating margin to be flat to decline modestly. Further, earnings per share are envisioned to be $1.75-$1.80. Earlier, the company had projected earnings per share of $1.75-$1.85, with underlying sales growth of 5-7%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -18.1% due to these changes.
VGM Scores
Currently, Brown-Forman Corporation has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Brown-Forman Corporation has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.