Brown-Forman 2nd-quarter profit rises 2 percent

AP News
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Posted: Dec 08, 2011 6:27 PM
Brown-Forman 2nd-quarter profit rises 2 percent

Brown-Forman Corp. on Thursday said fiscal second-quarter profit rose 2 percent, helped by sales gains for its flagship Jack Daniel's whiskey as the liquor maker spent more to market its new flavored concoctions.

The company, which also sells Southern Comfort and Finlandia vodka, said revenue rose 12 percent in the August-October quarter. Brown-Forman said gains overseas, particularly in Germany, Mexico, Russia, the U.K. and a few other countries, have helped propel sales over the past six months.

But as revenues grew, so did the company's expenses. The liquor maker's advertising spending rose 14 percent from a year ago to promote new products such as Southern Comfort Fiery Pepper and a honey-flavored Jack Daniel's. Selling and administrative expenses increased 10 percent. Higher costs for materials and excise taxes also hurt margins.

Brown-Forman Chief Financial Officer Don Berg said advertising spending will grow more modestly in the last half of the fiscal year.

Still, the company said the impact of a stronger dollar has tempered earlier profit expectations. It now predicts full-year earnings per share of $3.45 to $3.70 from previous guidance of $3.45 to $3.85 per share.

Analysts polled by FactSet expect $3.68 per share.

Companies that sell goods internationally get stung by a stronger dollar when they convert revenue in foreign currencies back into the dollar. About 55 percent of Brown-Forman's overall sales come from markets outside the U.S.

In the U.S., liquor consumption at bars and restaurants appears to be improving slightly but remains sluggish, company executives said. Out-on-the-town drinking, a key segment for spirits companies, has been staggered by the struggling economy.

"Nothing that we've seen would indicate that it's booming back," company CEO Paul Varga said in a conference call with industry analysts. "I think it's more incremental and it probably varies by region of the country."

Buoyed by international growth, Jack Daniel's whiskey brand led sales gains in the company's spirits lineup, rising 16 percent in the six months through Oct. 31 when excluding the impact of currency changes.

On the same basis, Finlandia-branded vodka sales rose 9 percent in the six months. It's a strong showing for a brand that had posted sluggish sales recently. The company's expenses in the quarter included rolling out a new Finlandia bottle design.

But Southern Comfort-branded alcohol sales fell 7 percent, and Varga said that reinvigorating the brand remains a top priority.

Results for the company's other brands were mixed. Sales of the el Jimador brand and Brown-Forman's pricier alcohols rose. Canadian Mist and Korbel Champagne sales declined.

Executives were more optimistic about pricing, saying that an improving economy could offer chances to boost prices around the world in the year ahead.

The Louisville, Ky., company reported net income of $157.6 million, or $1.09 per share, in the second quarter that ended Oct. 31. That's up from $154 million, or $1.05 per share, a year ago.

Revenue increased to $1.01 billion from $905.7 million.

Analysts expected earnings of $1.09 per share on revenue of $957.4 million.

The company's Class B shares dipped 67 cents to close at $80.07 Thursday.