Earnings Preview: Brown-Forman Corp.

AP News
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Posted: Dec 04, 2009 6:16 PM

Liquor company Brown-Forman Corp. reports earnings for its second quarter on Tuesday before the market opens. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Brown-Forman has endured sluggish sales as the weak economy has dampened consumer spending. Sales of the company's flagship Jack Daniel's Tennessee Whiskey brand declined in the first quarter, as did sales of Finlandia vodka. Southern Comfort, another key Brown-Forman brand, has been mired in a prolonged sales slump.

The company said its first-quarter results were hurt by declines in drinking at bars and restaurants and by consumers choosing less expensive drinks. Among the bright spots has been strong growth in sales of the company's ready-to-drink cocktails, another indication that more consumers are staying at home to drink.

UBS analyst Kaumil S. Gajrawala said signs pointed to more discounting and heavier promotional activity by the liquor industry during the crucial holiday period. He said he was seeing no indications that alcohol sales trends at bars and restaurants were improving for Brown-Forman.

Export markets account for more than half of Brown-Forman's sales, and concerns about demand in Eastern Europe, the key market for Finlandia, could be a drag on overall sales.

BY THE NUMBERS: Analysts polled by Thomson Reuters, who typically exclude one-time items, expect a profit of 84 cents per share on revenue of nearly $888.6 million. In the same quarter last year, Brown-Forman reported a profit of 94 cents per share on net sales of $934.7 million.

ANALYST TAKE: Gajrawala, the UBS analyst, had a cautious outlook for Brown-Forman for the remainder of the year amid signs of soft consumer demand and heightened discounting for the holiday season.

"While we believe inventory destocking issues are likely over in the U.S. and Western Europe, we expect soft demand and destocking in Eastern Europe to continue," he wrote in a note to investors.

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WHAT'S AHEAD: Analysts and investors will be looking for clues about early sales trends in the holiday season, and what the company expects for the balance of its fiscal year. Another key barometer will be the latest trends among customers in choosing whether to drink at home or venture out to bars and restaurants.

STOCK PERFORMANCE: For the three months that ended Oct. 31, shares of Brown-Forman's Class B shares rose 9.6 percent to end the quarter at $48.81. They closed Friday at $52.07, up $1.78, or 3.5 percent. In the last 52 weeks, they've ranged from $34.97 to $53.78.