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Brown-Forman to lose $125 million if tariffs remain

Jack Daniel’s maker Brown-Forman has estimated that retaliatory tariffs on American whiskey could knock US$125 million off its 2019 financial results.

American whiskey maker Brown-Forman has warned that tariffs will hit its full-year fiscal results

The forecast was made by Brown-Forman’s chief financial officer, Jane Morreau, following the publication of the firm’s third quarter and year-to-date sales.

She said that in Q3, Brown-Forman “began to see the cost of tariffs hit not just our cost of sales and growth margins, but also our underlying net sales growth in the quarter and year to date”.

Nations around the world, including EU and China, have implemented retaliatory tariffs on US imports, including American whiskey, in response to Donald Trump’s taxes on imported steel and aluminium last year.

According to US trade association the Distilled Spirits Council, American whiskey exports dropped by 8.7% to US$526m between July and November 2018 after the retaliatory taxes were put in place.

In certain markets where it works with a distributor, Brown-Forman “[lowered] net prices to compensate for the incremental tariff costs that our partners are incurring,” Morreau said.

She continued: “We estimate that these price adjustments reduce our year-to-date underlying net sales growth by approximately one percentage point”.

Morreau predicted that if the tariffs remain in place, Brown-Forman will suffer an annual loss of US$125m, “before taking into account any mitigation action”.

“As we have discussed previously, we have taken actions to mitigate roughly half of the tariffs impact we expect in fiscal 2019,” Morreau said, adding that the cost of tariffs started to impact Brown-Forman’s business in October 2018.

“So we anticipate that we will have about seven months of tariff drag on our results this fiscal year,” Morreau continued.

Jack Daniel’s led Brown-Forman’s performance in the period, but “tariff-related pricing actions” reduced the family of brands’ underlying net sales by one percentage point.

Lawson Whiting, recently appointed CEO of Brown-Forman, said: “While tariffs remain a near-term challenge on American whiskey exports, we will weather the storm as we have on so many other challenges over the last 150 years as we look to create value for our shareholders.”

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