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Brown-Forman sales dip due to strong dollar

The water tower atop the Brown-Forman distillery in Louisville.
The water tower atop the Brown-Forman distillery in Louisville. Photo provided

Brown-Forman reported Wednesday that sales for the second quarter slowed 4 percent, to just over $1 billion, due to adverse foreign exchange rates for the Louisville-based parent of Jack Daniel’s.

About 60 percent of Brown-Forman’s sales are overseas, where the strong dollar hurts buying power.

“While adverse foreign currency exchange continued to dampen our reported results, Brown-Forman’s underlying results in the first half of the year remain strong and keep us on track to achieve our full-year growth outlook,” CEO Paul Varga said in a news release. “We expect our top-tier underlying results to be driven by our Jack Daniel’s-led portfolio, our leadership position in the premium American whiskey category, and the breadth and balance of our geographic development.”

Underlying sales — accounting for the strong dollar — were up 5 percent for the quarter that ended Oct. 31. For the first six months of the year, Brown-Forman reported that net sales were down 3 percent but up 6 percent on an underlying basis.

For the quarter, profits were down 3 percent compared with the same quarter of 2014 to $200 million. Diluted earnings were flat at $0.98 a share. Market analysts had predicted earnings of $1 a share.

For the first half of the year, profits were flat at $356 million; diluted earnings were up 3 percent to $1.72 a share.

In a conference call with analysts Wednesday, Varga batted away concerns about a potential Brown-Forman deceleration.

“Foreign exchange headwinds aside, I’m pleased with first-half results, especially with our premium whiskey portfolio,” Varga said. Holiday sales are expected to be solid, with November improving over expectations based on published data, he said.

For fiscal 2016, the premium whiskey maker continues to expect underlying net sales growth of 6 percent to 7 percent and diluted earnings per share of $3.40 to $3.60.

Net sales of flagship Jack Daniel’s grew 7 percent on an underlying basis, with offshoot Jack Daniel’s Tennessee Honey up 14 percent, the company reported.

Super-premium whiskeys including Woodford Reserve, which is made outside Versailles, continued to see double-digit growth at an underlying 28 percent.

Southern Comfort continued to struggle, but Varga said a new viral video campaign might perk up sales.

And the company’s global travel retail segment remains a challenge, Varga said.

Sales of el Jimador and Herradura tequila, while down a reported 6 percent and 2 percent respectively, were up 8 percent and 7 percent on an underlying basis.

But U.S. sales were up a reported 5 percent, with Jack Daniel’s Tennessee Fire driving 3 percentage points of that growth, the company said.

Flavored whiskey has “become an important piece of the distilled spirits market in the U.S., but a lot of gold is there to be mined outside the U.S. as well,” Varga said.

Some cannibalization of market share by flavored whiskeys is expected, but Jack Daniel’s has seen Honey and Fire also act as a gateway, he said.

“We are seeing really nice evidence that it actually exposes people to the Jack Daniel’s brand in such a positive way, it’s a way to build their palate toward straight whiskey,” Varga said, adding that his wife, who had never been a whiskey drinker, enjoys Tennessee Honey.

“Over Thanksgiving, she was stealing my Gentleman Jack,” Varga said. “Whether she will trade up to Woodford Reserve, I don’t know.”

The company has bet heavily that the bourbon boom will continue: It’s in the midst of a $300 million building campaign to add distilling, warehousing and barrel-making capacity. Brown-Forman also is gearing up to celebrate the 150th anniversary next year of the Jack Daniel’s Distillery in Lynchburg, Tenn.

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