Brown-Forman CEO Lawson Whiting: Coronavirus brings ‘so many unknowns’

6th March, 2020 by Nicola Carruthers

Lawson Whiting, CEO of Brown-Forman, said it was “difficult to quantify the financial impact” that coronavirus would have on the business as the group revised its full-year outlook.

Lawson-Whiting-Brown-Forman

Lawson Whiting, Brown-Forman CEO

Speaking during a conference call following the publication of the firm’s third quarter and year-to-date sales, Whiting said regarding the coronavirus situation: “There are so many unknowns right now and it’s difficult to quantify the financial impact.”

He added that the health and safety of its employees “is paramount” and Brown-Forman has taken a number of measures including “limiting travel, cancelling certain meetings, providing up-to-date information from the CDC [Centers for Disease Control and Prevention] and the World Health Organization, and ensuring our flexible work policies are being utilised”.

The publication of the group’s results included a revision of its full-year outlook to “reflect tempered expectations in some of its international markets reflecting both short-term disruptions and an increasingly uncertain global economic and geopolitical environment”. The company has also considered the impact of coronavirus.

For fiscal 2020, Brown-Forman expects “low single-digit underlying net sales growth”, and a “flat-to-modest decline in underlying operating income”.

Whiting said that its emerging markets, such as Asia, “are likely to suffer in the near term as a result of the impact from coronavirus”.

The company’s presence in Asia is “relatively small, but fast growing”, said Whiting who notes a “future opportunity” in the market.

Whiting told analysts that Asia “is a wildcard” and the company “has to be agile next year” due to the “tough outlook”. He added: “We generally feel pretty good on the top line that the things will return to what I call a more normalised growth rate.”

Long-term growth potential

Speaking to analysts, Jane Morreau, Brown-Forman’s executive vice president and chief financial officer, said of the Asia market: “Over the past nearly two years, we’ve been quite pleased with the momentum and increasing contribution we’ve been experiencing from this part of the world.”

She added that the firm’s business in China has grown underlying net sales at a double-digit rate since fiscal 2018, mainly boosted by a “growing e-premise business where we have been focusing our investments in this market”.

Morreau said Brown-Forman’s performance in January “had essentially not been affected by the coronavirus”, but expects a “marked slowdown in our fourth quarter in this market and other parts of Asia”. She added that company has already experienced this slowdown in February.

“Despite this near-term headwind, we remain optimistic about the long-term growth potential for our portfolio throughout Asia,” said Morreau.

Morreau said the markets affected currently by coronavirus, including Asia, travel retail and Italy, are collectively around 8% of the business.

She said: “We’re learning daily as this situation unfolds. So we’re really only looking at our fourth quarter, we haven’t tried estimating downstream, secondary effects on anything beyond the demand we see and then an expectation for it [to] spread in some other markets.

“We don’t know about the economy and the consumer confidence and sentiment and how they may linger into our first quarter in summer months.”

She added the firm will release guidance in June for the following year.

Brown-Forman’s travel retail sales fell by 3% due to “lower volumes” for Jack Daniel’s Tennessee whiskey, which were offset by volume gains from Woodford Reserve.

Regarding travel retail, Morreau said its business is concentrated more in Europe, rather than Asia. She said the group is “cycling against some softer growth in the second half of travel retail” and that the firm forecasts “some improvement” offset by coronavirus.

The impact of coronavirus has also been felt by rivals Diageo and Pernod Ricard.

Johnnie Walker owner Diageo has already cut its full‐year 2020 profit forecast by up to £200 million (US$260m) as bars and restaurants in Greater China remain empty.

French firm Pernod Ricard anticipates the outbreak will have a “severe” impact on its China and travel retail business. In China, the firm expects a “gradual recovery” from March, returning to normal in June. As a result, the drinks group cut its guidance for organic growth in profit from recurring operations for fiscal 2020 to 2%‐4%, from previous expectations of 5%‐7%.

Last week, Alexandre Ricard, CEO of Pernod Ricard, said it is too early to tell how coronavirus would impact the group.

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