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Bourbon and Tequila boost Brown-Forman Q3 sales

Brown-Forman has reported a net sales increase of 3% to US$904 million in its third quarter, driven by the “strong global demand” for American whiskey.

The cost of Jack Daniel’s is set to increase due to the EU-US trade war

In the company’s third quarter ending 31 January 2019, reported operating income grew 4% to US$230m compared to the same period in the previous financial year.

For the first nine months of fiscal 2019, the company’s reported net sales increased by 3% to US$2.580 billion and reported operating income increased 2% year to date to US$916m.

CEO Lawson Whiting said: “Our portfolio of premium spirits brands delivered solid rates of sustained sales growth, led by the strength of our Bourbon and Tequila brands, as well as the international expansion of the Jack Daniel’s trademark.

“We remain on track to deliver another strong year of results as cost discipline helped offset some of the large burden we are absorbing due to the retaliatory tariffs on American whiskey.

“The growth opportunity for our brand portfolio remains significant, and our teams around the world are executing on our long-term growth strategy.”

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 last 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.

In the US, underlying net sales for the year to date grew 4% boosted by the double-digit growth of Bourbon brands Woodford Reserve and Old Forester.

Net sales in the company’s developed international markets increased by 3% driven mainly by volume gains.

Germany and Australia delivered “very strong” net sales growth of 13% and 7%, respectively.

The UK and France had “modest” results, up 3% and 1%, respectively. Canada declined by 5% due to a change in Brown-Forman’s selling and marketing structure.

The Mexican market “remained the largest growth driver”, up by 15%, fuelled by “strong gains” across the group’s Tequila range.

Poland grew by 1% as “double-digit gains for Jack Daniel’s were largely offset by soft results for Finlandia”. Travel retail provided “solid” results, up by 6%.

Brand performance

The Jack Daniel’s family of brands grew by 4% globally and was “negatively impacted by approximately one percentage point due to tariff-related lower net prices”.

Flagship brand Jack Daniel’s Tennessee Whiskey rose by 2% boosted by volume gains.

The company’s portfolio of super- and ultra-premium American whiskey brands – including Woodford Reserve, Jack Daniel’s Single Barrel and Gentleman Jack – delivered a growth of 24% due to “favourable” category trends.

Woodford Reserve increased by 24% as it enjoyed “out-sized growth as the leader in the super-premium Bourbon category”. Old Forester also grew by double digits.

El Jimador Tequila rose by 15%, boosted by volume growth and higher prices in the US as well as “strong takeaway trends in Mexico after repositioning the brand in the premium space over the last few years”.

Herradura Tequila was up by 14% with double-digit gains in the US and Mexico driven by “continued consumer demand” for Herradura Ultra.

Finlandia vodka declined by 7% due to Poland’s “competitive retail environment for vodka” and the “tough prior year comparison” when Brown-Forman appointed a new distributor in Russia.

Underlying advertising spend increased 3% year-to-date as the firm made investments across the brand portfolio, including flagship brand Jack Daniel’s, the first year of the Woodford Reserve Kentucky Derby sponsorship, and the opening of the Old Forester distillery last year.

Looking ahead to the remainder of fiscal 2019, the company said “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”.

Upon the assumption that tariffs remain in place for the full fiscal year, Brown-Forman expects an underlying net sales growth of 6%-7% and an operating income growth of between 4%-6%.

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