Brown-Forman pledges $100m savings as sales slip 4%

Jack Daniel’s maker Brown-Forman has said it will make US$100 million in cost savings over three years after its fiscal 2017 full-year sales fell by 4%.

Sales slipped from US$4.0 billion to US$3.9bn, with the company blaming currency impacts and acquisition and divestment activity for the declines.

Despite the losses, Brown-Forman says underlying sales climbed 3%, improving to 4% for the second half of the year.

The company also said it will seek to make cost savings of U$100 million in cost savings over three years through “leveraging” investments, production capabilities, route-to-market, brand innovation, assets and people.

Developed markets enjoyed a “solid” year with underlying sales in the company’s top ten markets all growing, however the US saw reported sales slip by 3%, and the UK tumbled by 12%.

Travel retail recovered well, with reported sales climbing by 3% driven by improvement in Europe and Russia, and a development on the airline channel.

Emerging markets showed “significant” improvement, with reported sales recovering from -7% losses in the first six months to -1% during the second period.

Brown-Forman’s non-branded business, primarily used barrel sales, fell by 18% on weaker demand.

Super- and ultra-premium drives underlying growth

Star performing bands include Woodford Reserve whiskey, which saw 14% reported sales gains and ultra-premium Tequila Herradura, which climbed 9%.

The Jack Daniel’s portfolio, which had propelled sales in the third quarter, saw net sales climb 3% but remained flat on a reported basis.

Jack Daniel’s Tennessee Whiskey saw depletions climb 2% in the second half as emerging marketing improved, while Gentleman Jack saw its underlying sales reach “mid-single digit” globally. The RTD line has a “very strong year” driven by the American Serve in the Australian market.

Finlandia Vodka saw reported sales slump by 10% with Brown-Forman noting Polish and Russian premium vodka markets remain “very challenging”.

Chambord saw its underlying net sales grow by “low single-digits”, while Canadian Mist continued to experience declines.

“Fiscal 2017 was another year of strong underlying growth and excellent progress in positioning Brown-Forman for continued gains in the years ahead,” said Brown-Forman CEO Paul Varga.

“This year’s results translate into the tenth straight year of growth in underlying net sales and operating income, with fiscal 2017’s underlying operating income growth of 7% approximating the 10-year average of 8%.

“Given the acceleration we experienced in the second half of the year, the investments we continue to make behind the business, and the expectation of improved contribution from innovation next year, we are forecasting another strong year in fiscal 2018, with mid-single digit underlying net sales growth and operating expense leverage driving 6-8% growth in underlying operating income.”

Looking forward

With the global economy remaining “volatile”, especially in emerging markets, Brown-Forman said it is “difficult” to predict further results. However it is targeting underlying net sales growth of 4-5% with operating income growth of 6-8% in 2018, translating into earnings per share of US$1.80-1.90 in fiscal 2018.