Brown-Forman sales bolstered by emerging markets

Jack Daniel’s producer Brown-Forman has reported a net sales increase of 2% to US$1.67 billion in the first six months of fiscal 2019, boosted by double-digit gains from emerging markets.

The Jack Daniel’s family of brands grew by 5%

Year-to-date reported operating income for the group was “flat”, increasing by 4% on an underlying basis to US$596 million. In the year to date, underlying net sales grew by 5%.

Brown-Forman’s second quarter net sales grew 3% to US$910m compared to the same period last year. Operating income for the quarter fell by 5% to US$332m.

Brown-Forman’s first six months of fiscal 2019 grew by 5% on an underlying basis, negatively impacted by foreign exchange.

The company said Q2 sales were “negatively impacted by approximately two percentage points primarily due to tariff-related inventory reductions (giveback) associated with the first quarter’s tariff-driven buy-ins”.

The US has found itself embroiled in numerous trade wars in 2018, including with Canada, the EU and China. It comes after US president Donald Trump introduced a 25% import duty on steel and 10% on aluminium.

As such, nations including Canada and China retaliated with their own tariffs, targeting US goods such as American whiskey.

In June this year, Brown-Forman confirmed prices of its American whiskey and Bourbon brands would be raised as a direct result of the tariffs – up 10% in EU markets where the company owns distribution.

CEO Paul Varga said: “Tariff-related buy-ins helped power first quarter results, while the anticipated giveback materialised in the second quarter, resulting in 5% underlying net sales growth during the first half.

“This growth demonstrates the consistency of our revenue delivery, especially against strong, 7% underlying net sales growth during the same period last year.

“Given easier back half comparisons and our momentum, we are on track for another year of 6-7% underlying net sales growth.”

In the year to date, underlying net sales in emerging markets grew by 10%. Mexico increased by 12% due to “strong gains” across the portfolio, notably Herradura Tequila and New Mix.

Brazil increased by 36% due to “strong demand” for Jack Daniel’s Tennessee Whiskey.

The US grew by 3% boosted by Woodford Reserve and Old Forester Bourbon, while the UK increased by 16%. Travel retail delivered “strong growth”, up by 14%.

In terms of brands, the Jack Daniel’s family of brands grew by 5%.

Brown-Forman’s portfolio of super-premium American whiskey brands – including Woodford Reserve, Jack Daniel’s Single Barrel and Gentleman Jack – delivered 19% underlying net sales growth (12% reported), driven by “increased consumer demand” for the brands, particularly in the US.

Net sales of El Jimador Tequila increased by 11%, and Herradura grew by 15%.

Finlandia vodka declined in the first half by 8% driven by “unfavourable channel mix” in Poland and lower volumes in Russia and the US.

Lawson Whiting, chief operating officer and incoming CEO, added: “Our premium portfolio of American whiskey brands, led by Jack Daniel’s and bolstered by Woodford Reserve, continued to deliver balanced geographic growth.

“While we are largely absorbing the tariff costs during fiscal 2019, we are confident in the long-term growth potential for our brands as we continue to build awareness with new consumers and increase our global distribution.”

The company said in a statement on its fiscal 2019 outlook: “The global economy has continued to improve over the last year.

“However, the competitive landscape in the developed world remains intense, and recently enacted retaliatory tariffs on American whiskey have created additional uncertainty around the company’s near-term outlook, making it difficult to accurately predict future results.”