Brown-Forman (BF.B) Q4 Earnings & Sales Beat, Guides FY17

Brown-Forman Corporation BF.B ended fiscal 2016 on a solid note, as both the top and bottom line for the fiscal fourth quarter surpassed estimates.

Adjusted earnings for fourth-quarter fiscal 2016 surged 25.8% to 83 cents a share, beating the Zacks Consensus Estimate of 73 cents. Including the impact of non-recurring items like sale of Southern Comfort and Tuaca, earnings jumped significantly to $2.60 per share.

Net sales declined 1% year over year to $933 million. However, on an underlying basis (excluding negative currency impact and other adjustments), sales grew 4%. Moreover, after deducting excise taxes, sales came in at $729 million, down 1.5% from the prior-year figure of $740 million. The Zacks Consensus Estimate was pegged at $703.3 million.

Though results were adversely affected by foreign currency headwinds, tough economic conditions in emerging markets and soft travel retail network, the company's robust underlying performance gained from its strong portfolio of premium American whiskey brands, along with its Jack Daniel’s trademark.

Quarter in Detail

Brown-Forman’s gross profit declined 3% to $513 million, while the gross margin contracted 60 basis points (bps) to 55%.

Selling, general and administrative expenses fell 3% from the year-ago quarter figure to $181 million. Further, advertising expenses fell 2% year over year to $101 million.

Operating income improved considerably to $726 million, with the operating margin expanding at a robust rate to 77.8%. Excluding the effect of sale of Southern Comfort and Tuaca, operating income of this Zacks Rank #2 (Buy) company jumped 10%. On an underlying basis, operating income increased 15%.

Fiscal 2016: A Glimpse

For fiscal 2016, Brown-Forman’s adjusted earnings rose 8% to $3.46 per share, beating the Zacks Consensus Estimate of $3.40. Including one-time items, the bottom line grew 63% to $5.22 per share.

Though net sales dropped 2% to $4,011 million, it jumped 5% on an underlying basis. The Zacks Consensus Estimate for fiscal 2016 stood at $3,066 million. Also, management stated that adverse currency movements hurt the top-line growth by 6 points.

Balance Sheet & Cash Flow

Brown-Forman ended the quarter with cash and cash equivalents of $263 million, and long-term debt of $1,230 million. The company’s total shareholders’ equity was $1,562 million as of Apr 30, 2016.

During fiscal 2016, the company generated $524 million of cash from operations.

On May 26, the company announced a quarterly dividend of 34 cents per share, payable on Jul 1, to shareholders on record as of Jun 6, 2016. Also, the company declared a two-for-one stock split for Class A and B shares on May 26. Additionally, Brown-Forman bought back about 11.4 million shares for $1.1 billion in fiscal 2016.

Taken together, the company also returned about $1.4 billion to its shareholders in the form of dividends and share buybacks, during fiscal 2016. As of Apr 30, 2016, the company had shares worth $889 million remaining to be repurchased.

Fiscal 2017 Guidance

Brown-Forman indicated that future projections have become difficult in the face of an uncertain global economic environment and its effect on businesses. However, anticipating that the global economy will remain at current levels, the company expects that sturdy demand for authentic American whiskey brands worldwide, consumer interest in flavored whiskey and a rising trend toward premium spirits will drive growth.

For fiscal 2017, management expects a 4%-6% increase in underlying sales. Further, underlying operating income is anticipated to increase in a range of 7%–9%.

Based on the aforementioned estimates and a 7 cent negative influence from foreign currency headwinds, the company projects fiscal 2017 earnings in the range of $3.42–$3.62 per share.

Other Stocks to Consider

Other well-ranked stocks in the same industry include Molson Coors Brewing Company (NYSE:TAP) and Compania Cervecerias Unidas S.A. (NYSE:CCU) with a Zacks Rank #1 (Strong Buy) each and Diageo (LON:DGE) plc (NYSE:DEO) carrying a Zacks Rank #2 (Buy).

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