Brown-Forman posts 8 percent drop in 1Q net, international sales help counter US weakness

Brown-Forman posts 8 percent drop in 1Q net income

NEW YORK — Liquor company Brown-Forman Corp. posted a 8 percent drop in first-quarter net income, missing analyst estimates and sending shares into a tailspin Wednesday as investors worried about the company’s ability to meet its targets.

The maker of Jack Daniel’s Tennessee Whiskey and Finlandia vodka has struggled with its U.S. sales as people limit their trips out to bars and restaurants during the downturn.

The Louisville, Ky.-based company has been focusing attention overseas and said Wednesday its strong international sales in countries such as Australia and Germany helped offset sluggish U.S. sales.

But the company spent more on operating expenses including investments, pensions and marketing, which hurt results.

The company earned $111.4 million, or 76 cents per share, in the three months ending July 31. That’s down from $121.4 million, or 81 cents per share last year.

Revenue rose 1 percent to $744.9 million.

Analysts expected the company to earn 83 cents per share on revenue of $758.4 million, according to Thomson Reuters.

Shares fell $2.77, or 4.5 percent, to $58.52 on heavy volume Wednesday.

Morgan Stanley analyst Dara Mohsenian called the quarter a “clear disappointment despite a tough macro environment.” She said the company’s underlying fundamentals are worse than the market is pricing its shares and said the company has cut its marketing and advertising spending by 16 percent in the last two years.

Marketing experts say companies must keep up their marketing during a downturn to keep shoppers buying and better position themselves for a recovery.

In June, Brown-Forman executives said drinking in restaurants and bars was showing early signs of recovery, although people weren’t spending as much as they had before the downturn. That trend tapered off in the most recent quarter and “much uncertainty remains,” CEO Paul Varga told investors on a conference call.

“The economy continues to have a clear impact on the consumer environment,” he said. “Particularly in developed markets, consumer confidence is low, savings rates have increased and unemployment remains high.”

The company said brands that grew in the quarter include el Jimador, New Mix, Sonoma-Cutrer, Woodford Reserve, Tequila Herradura, and Finlandia.

Southern Comfort, however, declined.

International sales also grew in Mexico, Britain and Turkey. The company sold 9 percent more Jack Daniel’s Tennessee Whiskey overseas in the quarter, while in the U.S. the figure dropped 4 percent. The company said that was due to a tough comparison to last year when retailers bought more because of expected increases in excise taxes.

The company rolled out new packages for the Southern Comfort line, Chambord, and Tuaca and began shipping Chambord Vodka and Southern Comfort Lime.

“These and other innovations are expected to increase brand awareness and to contribute to incremental sales, although their near-term impact is projected to be relatively minor,” the company said.

The company reaffirmed its guidance for the fiscal year, saying it continues to expect 2011 earnings per share from $2.98 to $3.38. Analysts expect earnings per share of $3.06 on revenue of $10.64 billion, according to Thomson.

Brown-Forman sold 3 percent more of Jack Daniel’s whiskey brands in the quarter and 19 percent more of its Jack Daniel’s premixed cocktails such as Lynchburg Lemonade. People have been drinking more at home because of the down economy, so Brown-Forman and other alcohol makers have been ramping up their premixed cocktail lines to demystify cocktails and keep people drinking.

The company’s Southern Comfort premixed cocktail line posted a 16 percent rise in volume, while the traditional Southern Comfort brand’s volume fell 6 percent.