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On-Premise & Off-Premise Trends to Decide Brown-Forman's Fate
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Brown-Forman Corp. (BF.B - Free Report) displays momentum even as the on-premise channel, which is the prime business center for most alcohol companies, remains closed due to the coronavirus outbreak since the middle of March, which continued throughout April. The nationwide lockdowns, stay-at-home orders, and shutdown of bars and restaurants across the major markets impacted the on-premise channel, which represents 20% of the company’s global business. Moreover, the Travel Retail business has been affected by travel bans and other restrictions.
Notably, the pandemic hurt underlying net sales by nearly 15% in the March-April period. The greater negative impact was felt in April mainly as results for March reflected some initial gains from pantry-loading activities. Consequently, Brown-Forman’s earnings missed the Zacks Consensus Estimate in fourth-quarter fiscal 2020, while sales beat the same. Moreover, its top and bottom lines declined year over year in the quarter.
Driven by the unprecedented impacts of the ongoing coronavirus outbreak, the company did not provide guidance for fiscal 2021.
The Brown-Forman stock has lost 4.7% year to date compared with the industry’s decline of 26.3%. Moreover, the company has witnessed growth of 12.3% in the past three months.
Factors Driving Momentum
None of the companies are immune to the current scenario. However, Brown-Forman has been benefiting from strong growth in the off-premise and e-premise channels in most of the developed markets. The coronavirus outbreak-led restrictions resulted in increased at-home consumption and pantry loading, which mainly caused accelerated growth in the channels.
In the United States, the company witnessed a significant acceleration in the off-premise takeaway trends for alcoholic beverages since the pandemic spread. The trends have been robust in the past 13 weeks, with spirits growing the fastest. While the off-premise channel benefited from the initial pantry-loading trends in March, the company notes that consumption trends have gradually shifted from the on-premise channel due to an increase in at-home consumption occasions.
Further, the company witnessed impressive growth for its brands in the e-premise channel, as consumers made fewer shopping trips. It benefited from quickly shifting focus and resources based on these consumer demand trends. This also led the company to report strong underlying sales growth in the United States.
Additionally, it remains focused on investing in the diversification of its brand portfolio to drive growth. For more than a decade, Jack Daniel's Tennessee Whiskey has been the key contributor to growth in the United States. The company’s investments in brands center around broadening the Jack Daniel’s family of brands, while also exiting the weaker brands and expanding the fast-growing premium spirits categories.
Recently, Brown-Forman agreed to sell Early Times, Canadian Mist and Collingwood brands, and the Canadian Mist production assets to Sazerac Company. The transaction is anticipated to be concluded by the second half of this summer. This move is in sync with Brown-Forman’s strategy to improve focus on its premium brands.
In another move, Brown-Forman made some changes to its organizational structure to unlock the growth potential of markets, brands and people. The changes will mainly relate to its international business, which will be split into two parts — Europe and Emerging International. The changes will be effective from Aug 1, 2020.
The Europe division will primarily comprise the U.K./Ireland; Germany/Czechia; France/Spain/Portugal; Poland; and the greater Europe markets that make up for the Developing Europe markets. Meanwhile, markets in the Emerging International division will mainly include — Global Travel Retail (GTR); Asia; Australia/New Zealand; Latin America; and Russia/CIS/Turkey/India/Middle East and Africa.
Conclusion
The strength in the off-premise and e-premise channels is likely to help the company steer through the coronavirus crisis. Moreover, its efforts to elevate brands and portfolio will go a long way in boosting long-term returns. In all likelihood, the Zacks Rank #3 (Hold) company’s Growth Score of B is indicative of more growth in the long term.
Craft Brew Alliance, Inc. , with a Zacks Rank #1 at present, delivered a positive earnings surprise of 150% in the last reported quarter.
Constellation Brands Inc (STZ - Free Report) , with a long-term earnings growth rate of 6.8%, currently sports a Zacks Rank #2 (Buy).
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
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On-Premise & Off-Premise Trends to Decide Brown-Forman's Fate
Brown-Forman Corp. (BF.B - Free Report) displays momentum even as the on-premise channel, which is the prime business center for most alcohol companies, remains closed due to the coronavirus outbreak since the middle of March, which continued throughout April. The nationwide lockdowns, stay-at-home orders, and shutdown of bars and restaurants across the major markets impacted the on-premise channel, which represents 20% of the company’s global business. Moreover, the Travel Retail business has been affected by travel bans and other restrictions.
Notably, the pandemic hurt underlying net sales by nearly 15% in the March-April period. The greater negative impact was felt in April mainly as results for March reflected some initial gains from pantry-loading activities. Consequently, Brown-Forman’s earnings missed the Zacks Consensus Estimate in fourth-quarter fiscal 2020, while sales beat the same. Moreover, its top and bottom lines declined year over year in the quarter.
Driven by the unprecedented impacts of the ongoing coronavirus outbreak, the company did not provide guidance for fiscal 2021.
The Brown-Forman stock has lost 4.7% year to date compared with the industry’s decline of 26.3%. Moreover, the company has witnessed growth of 12.3% in the past three months.
Factors Driving Momentum
None of the companies are immune to the current scenario. However, Brown-Forman has been benefiting from strong growth in the off-premise and e-premise channels in most of the developed markets. The coronavirus outbreak-led restrictions resulted in increased at-home consumption and pantry loading, which mainly caused accelerated growth in the channels.
In the United States, the company witnessed a significant acceleration in the off-premise takeaway trends for alcoholic beverages since the pandemic spread. The trends have been robust in the past 13 weeks, with spirits growing the fastest. While the off-premise channel benefited from the initial pantry-loading trends in March, the company notes that consumption trends have gradually shifted from the on-premise channel due to an increase in at-home consumption occasions.
Further, the company witnessed impressive growth for its brands in the e-premise channel, as consumers made fewer shopping trips. It benefited from quickly shifting focus and resources based on these consumer demand trends. This also led the company to report strong underlying sales growth in the United States.
Additionally, it remains focused on investing in the diversification of its brand portfolio to drive growth. For more than a decade, Jack Daniel's Tennessee Whiskey has been the key contributor to growth in the United States. The company’s investments in brands center around broadening the Jack Daniel’s family of brands, while also exiting the weaker brands and expanding the fast-growing premium spirits categories.
Recently, Brown-Forman agreed to sell Early Times, Canadian Mist and Collingwood brands, and the Canadian Mist production assets to Sazerac Company. The transaction is anticipated to be concluded by the second half of this summer. This move is in sync with Brown-Forman’s strategy to improve focus on its premium brands.
In another move, Brown-Forman made some changes to its organizational structure to unlock the growth potential of markets, brands and people. The changes will mainly relate to its international business, which will be split into two parts — Europe and Emerging International. The changes will be effective from Aug 1, 2020.
The Europe division will primarily comprise the U.K./Ireland; Germany/Czechia; France/Spain/Portugal; Poland; and the greater Europe markets that make up for the Developing Europe markets. Meanwhile, markets in the Emerging International division will mainly include — Global Travel Retail (GTR); Asia; Australia/New Zealand; Latin America; and Russia/CIS/Turkey/India/Middle East and Africa.
Conclusion
The strength in the off-premise and e-premise channels is likely to help the company steer through the coronavirus crisis. Moreover, its efforts to elevate brands and portfolio will go a long way in boosting long-term returns. In all likelihood, the Zacks Rank #3 (Hold) company’s Growth Score of B is indicative of more growth in the long term.
3 Better-Ranked Beverage Stocks
The Boston Beer Company, Inc. (SAM - Free Report) delivered a positive earnings surprise of 4.7%, on average, in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Craft Brew Alliance, Inc. , with a Zacks Rank #1 at present, delivered a positive earnings surprise of 150% in the last reported quarter.
Constellation Brands Inc (STZ - Free Report) , with a long-term earnings growth rate of 6.8%, currently sports a Zacks Rank #2 (Buy).
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>