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Brown-Forman growth stymied by tariffs

Jack Daniel’s producer Brown-Forman has reported a 2% net sales increase for its 2019 fiscal year, however tariff pressures “negatively impacted” the company’s growth.

Jack Daniel’s family of brands grew 1% in fiscal 2019

Reported net sales reached US$3.32 billion, with an underlying growth rate of 5%. The firm said net sales growth was “negatively impacted” by “tariff-related lower net prices to distributors in certain markets”.

Underlying operating income also grew by 9% to US$1.14bn.

Following the publication of the firm’s third quarter and year-to-date sales, Brown-Forman estimated that retaliatory tariffs on American whiskey could knock US$125 million off its 2019 financial results.

Nations around the world, including the 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.

Geographically, Brown-Forman’s net sales in the US were up by 2%. The company added that “recent increases in media spend and promotional activities are beginning to accelerate the takeaway growth rates” in the market, but are “not yet reflected” in sales growth.

Underlying net sales in emerging markets grew 4%, with Mexico (+3%) reported as the “largest growth driver” outside of the US. Growth in Mexico was boosted by “strong gains” across the firm’s Tequila portfolio.

China’s net sales grew “strong double-digits” boosted by the “strength” in e-commerce, sales for which doubled and now account for more than 30% of Jack Daniel’s sales in the market.

Underlying net sales in developed international markets grew by 1%. Germany delivered growth of 8%, while Spain grew by double-digits. The UK, France and Japan “were up modestly”, with low single-digit growth.

Brand performance

In terms of brands, the Jack Daniel’s portfolio increased by 1%, “negatively impacted by approximately one percentage point due to tariffs”.

Jack Daniel’s Tennessee whiskey witnessed “flat” net sales, while Gentleman Jack grew by 6%.

Super-premium American whiskey brands – including Woodford Reserve, Jack Daniel’s Single Barrel and Gentleman Jack – saw net sales increase by 19%. Woodford Reserve grew by 17% and Old Forester grew by double digits. During fiscal 2019, Brown-Forman opened a new Louisville distillery for Old Forester.

Both El Jimador Tequila and Herradura Tequila increased sales by 8%. Herradura witnessed “double-digit gains” in the US and Mexico, boosted by “continued consumer interest” in Herradura Ultra.

Finlandia vodka dropped by 4% due to a “competitive retail environment for vodka in Poland”, which was “offset somewhat by growth in Russia and Ukraine”.

Brown-Forman president and CEO Lawson Whiting said: “Although tariffs and higher input costs will negatively impact our gross margins again this year, we believe we are on track to return to high single-digit operating income growth as we move beyond fiscal 2020.

“Our growth prospects remain bright as we develop our premium spirits portfolio around the world, led by the Jack Daniel’s family of brands and Woodford Reserve.”

In a statement on its outlook, the company said: “The competitive landscape in the developed world remains intense, and retaliatory tariffs on American whiskey have created additional uncertainty around the company’s near-term outlook.”

For fiscal 2020, assuming tariffs remain in place, the company expects underlying net sales growth of 5% to 7% and underlying operating income growth of 3% to 5%.

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