Brown-Forman
Corporation (BF.B), one of the leading producers and
distributors of premium alcoholic beverages in the world, is
scheduled to report its fourth-quarter and fiscal 2012 financial
results before the opening bell on June 6, 2012.
The current Zacks Consensus
Estimate for the quarter is 76 cents per share. For the quarter
under review, revenue is expected to be $805 million, according to
the Zacks Consensus Estimate.
For fiscal 2012, the Zacks
Consensus Estimate stands at $3.59 per share while revenue is
expected to be $3,453 million.
Third-Quarter 2012 - A
Synopsis
Brown-Forman reported earnings of
93 cents per share for third-quarter 2012, missing the Zacks
Consensus Estimate of $1.00 and declined approximately 3.1% from
the year-ago earnings of 96 cents. Higher input and fuel costs
coupled with increased operating expenses affected the company’s
bottom line.
Brown-Forman's net sales remained
almost flat year over year at $959 million. As per the company, the
distributors piled up the inventories in anticipation of a price
rise during the second quarter, which was the main reason for flat
third-quarter sales.
Guidance for Fiscal
2012
In anticipation of a solid
improvement in consumer trends during the last quarter of fiscal
2012, Brown-Forman expects high-single digit growth in net sales
and operating income. However, it anticipates that the stronger
U.S. dollar value may have an adverse impact on its bottom line.
Accordingly, the company narrowed its earnings guidance range at
the time of third-quarter earnings release. Currently, Brown-Forman
expects fiscal 2012 earnings in the range of $3.50 to $3.65 per
share instead of $3.45 to $3.70.
Zacks
Consensus
The analysts following the stock
expect Brown-Forman to post fourth-quarter 2012 earnings of 76
cents a share, lower than 80 cents delivered in the prior-year
quarter. Currently, the Zacks Consensus Estimate ranges between 71
cents and 77 cents a share.
For fiscal 2012, the Zacks
Consensus Estimate stands at $3.59 per share, higher than the
year-ago fiscal earnings of $3.57. The current Zacks Consensus
Estimate ranges between $3.55 and $3.60 per share.
Agreement of
Estimate
For the fourth quarter of fiscal
2012, of the 7 analysts covering the stock, only 1 analyst revised
its estimates upward, while none have revised their estimates in
the downward direction, over the last 30 days. For full fiscal
2012, 1 analyst revised their estimate downward, while none revised
in the opposite direction, in the last 30 days.
In the last 7 days, no movement in
estimates has been noticed in either direction either for
fourth-quarter 2012 or fiscal 2012.
Magnitude of Estimate
Revisions
The magnitude of estimate revisions
for Brown-Forman depicts a neutral outlook for the upcoming fourth
quarter and fiscal 2012. Over the last 7 days, estimates for the
upcoming quarter and fiscal 2012 have remained unchanged at 76
cents and $3.59 per share, respectively.
However, in the last 30 days,
estimates for the upcoming fourth quarter moved up by a penny to 76
cents per share while they remain unchanged at $3.59 for fiscal
2012.
Surprise
History
With respect to earnings surprises,
Brown-Forman has missed as well as topped the Zacks Consensus
Estimate over the last four quarters in the range of negative 7% to
positive 25%. The average remained a positive 5.2%. This suggests
that Brown-Forman has surpassed the Zacks Consensus Estimate by an
average of 5.2% in the trailing four quarters.
Our
Recommendation
Brown-Forman is one of the leading
producers and distributors of premium alcoholic beverages in the
world. The company commands a strong portfolio of globally
recognized brands, such as Jack Daniel’s, Finlandia, Southern
Comfort and Canadian Mist. We believe this provides a competitive
edge to the company and bolsters its well-established position in
the market.
Moreover, we believe Brown-Forman’s
strategy of expanding Jack Daniel's market share in developed
markets, such as France and the U.S., and emerging markets
including Russia, Poland and Mexico, where the whiskey category is
in early stages of development will boost its top line.
However, apart from macroeconomic
headwinds, distilled spirits are subject to excise tax in various
countries. Rising fiscal pressure in the U.S., European and many
emerging markets may lead to increasing risk of a potential excise
tax on spirits by the governments of respective countries. The
effect of any excise tax increase in future may have an adverse
effect on Brown-Forman’s financial performance.
Above all, the company faces
intense competition from other well-established players in the
industry, including Beam Inc. (BEAM),
Constellation Brands Inc. (STZ) and Diageo
plc (DEO). Moreover, Brown-Forman also encounters
competition from local and regional players in the respective
countries. Consequently, this may dent the company’s future
operating performance.
Currently, Brown-Forman has a Zacks
#4 Rank, which implies a short-term Sell rating. However, we
maintain a long-term Neutral recommendation on the stock.
BEAM INC (BEAM): Free Stock Analysis Report
BROWN FORMAN B (BF.B): Free Stock Analysis Report
DIAGEO PLC-ADR (DEO): Free Stock Analysis Report
CONSTELLATN BRD (STZ): Free Stock Analysis Report
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