Brown-Forman sales slide 2% in FY 2016

Jack Daniel’s parent Brown-Forman saw its full year sales fall 2% to US$4.01bn in fiscal 2016, with currency volatility pegging back net sales.

CEO Paul Varga has hailed fiscal 2016 a “successful: year for Brown-Forman

The full year results were released alongside figures for the fourth quarter, when reported net sales declined 1% to $933 million (up 4% on an underlying basis).

Brown-Forman offloaded Southern Comfort and Tuaca during Q4, bolstering reported operating income by 212% to $726 million. Growth stood at 10% excluding the impact of the sale.

Despite the full year decline in reported net sales, underlying net sales increased 5% for the fiscal year, and underlying operating income increased 8%.

While emerging markets have historically been a significant contributor to growth, 2016 saw a “marked slowdown”, said the company, due to weakening economic conditions and currency devaluations. Underlying net sales in emerging markets ran at 8% in the first half of the year, before falling to 1% in the second half.

Excluding the Southern Comfort and Tuaca transaction, reported operating income grew 3%, with diluted earnings per share up 8% to $3.46 (63% to $5.22 with the sale).

Travel retail saw steep declines, with reported sales falling 18%. The sector was pressured by falling passenger spend, foreign exchange volatility and weaker consumer demand, the company said.

Despite the challenges, “fiscal 2016 was another successful year at Brown-Forman,” said Paul Varga, Brown-Forman CEO.

“We delivered solid underlying growth in sales and operating income, led by the Jack Daniel’s family of brands. We also made important changes to our portfolio of brands that we believe position us well for the long-term.

“Against a favourable backdrop of global interest in American whiskey, we invested capital to expand our capacity and we returned approximately $1.4 billion to our shareholders during the year. We believe that our strong free cash flow and capital efficiency positions us to deliver top-tier returns for our shareholders.”

Brand building

In terms of brands, the Jack Daniel’s family continued to make gains, with underlying net sales up 6% with Jack Daniel’s Tennessee Honey growing underlying net sales by 9%.

Other super- and ultra-premium whiskey brands – including the Woodford Reserve range plus Jack Daniel’s Single Barrel, Gentleman Jack, Sinatra Select, No.27 Gold and Collingwood – all saw double digit sales gains, including 28% underlying net sales growth for Woodford Reserve.

In line with the growth of the premium-plus Tequila category, Herradura saw underlying net sales increase 13% in fiscal 2016 (reported growth was flat), while El Jimador grew net sales 5% (-5% reported).

Finlandia vodka saw a 5% decline in net sales and was particularly impacted by weakness in Poland and Ruissia.

By region, sales growth in the United States – Brown Forman’s largest market, accounting for 46% – was driven by the Jack Daniel’s family of brands. Reported net sales increased 3%.

The UK, the company’s second largest market, saw reported net sales increase 5%, while Australia saw 12% declines.

Looking forward to 2017, Brown-Forman said “significant uncertainty around the global economic environment” made it difficult to forecast. Assuming no further deterioration, the company expects to achieve underlying net sales growth of 4-6% in the coming year, led by premium American whiskey brands.

Underlying operating income growth is forecast to reach 7-9%, with diluted earnings per share set to stand between $3.42-$3.62.

Brown-Forman acquired and divested a number of brands in fiscal 2016 as it sought to “focus resources on its highest strategic priorities”. In addition to selling Southern Comfort and Tuaca to US rival Sazerac, the company also purchased the Slane Castle Irish whiskey brand and most recently re-entered the Scotch category by snapping up The BenRiach Distillery Company.