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Driven by solid top-line growth and improved margins, Brown-Forman Corporation (BF.B - Analyst Report) posted strong bottom-line results for the second quarter of fiscal 2014. Earnings per share came in at 96 cents, which rose 20% year over year and beat the Zacks Consensus Estimate of 92 cents.

Net sales increased 6% year over year to $1,079 million. Moreover, after deducting excise taxes, sales came in at $833 million, up 7.2% from the prior-year figure of $777 million. The rise was primarily driven by strong demand for whiskey across the regions where the company operates and its geographical expansion initiatives. On an underlying basis, the company’s net sales increased 8%. The Zacks Consensus Estimate for the quarter was $855 million.

In the quarter, Brown-Forman’s gross profit increased 10% to $576 million from $525 million in the year-ago comparable quarter. Gross margin expanded 160 basis points (bps) to 53.4% from 51.8% in the prior-year period, primarily due to higher sales and fall in excise taxes and input costs as a percentage of sales.

Selling, general and administrative expenses (SG&A) rose 2% from the year-ago quarter to $162 million. Advertising expenses increased 4% year over year to $111 million.

Operating profit soared 19% year over year to $311 million from $262 million in the prior-year period. Operating margin expanded 300 bps to 28.8% from 25.8% in the year-ago quarter, primarily due to increased gross margin and lower operating expenses as a percentage of sales.

Balance Sheet & Cash Flow

Brown-Forman ended the quarter with cash and cash equivalents of $204 million and long-term debt of $997 million. During the first half of fiscal 2014, Brown-Forman, which competes with Beam Inc. and Boston Beer Company Inc. (SAM - Analyst Report), generated $201 million of cash from operations, against $165 million in the comparable period of the previous fiscal. During the first two quarters of fiscal 2014, the company returned $109 million to shareholders through dividend payouts.

Fiscal 2014 Guidance

Going forward, Brown-Forman reaffirmed its fiscal 2014 outlook. The company still expects fiscal 2014 earnings in the range of $2.80–$3.00 per share. Currently, the Zacks Consensus Estimate stands at $2.95 per share, which is towards the higher end of the company’s guidance. Moreover, the company projects a rise in operating income in the range of 9%–11% while underlying sales are expected to rise in high single digits.

Other Stocks to Consider

Currently, Brown-Forman carries a Zacks Rank #3 (Hold). A better placed stock in the beverages-alcohol industry is Constellation Brands Inc. (STZ - Analyst Report), which has a Zacks Rank #2 (Buy).

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