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Brown Forman (BF.B) Down 1.9% Since Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Brown Forman Corporation (BF.B - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Brown-Forman Declines as Q4 Earnings Lag Estimates
Brown-Forman Corporation reported fourth-quarter fiscal 2017, wherein adjusted earnings of $0.38 lagged both the year-ago figure and the Zacks Consensus Estimate of $0.40.
Net sales declined 4.8% year over year to $694 million, after deducting excise taxes. However, on an underlying basis (excluding negative currency impact and other adjustments), sales increased 4%. Moreover, the company’s sales, before accounting for excise taxes, came in at $887 million, down 4.9% from the prior-year figure of $933 million. The Zacks Consensus Estimate was pegged at $736.4 million.
Net sales were hurt by the persistence of currency headwinds and the divestiture of Southern Comfort and Tuaca in fiscal 2016. However, the company’s robust underlying performance came on the back of strong portfolio of premium American whiskey brands, along with its Jack Daniel’s trademark.
Quarter in Detail
Brown-Forman’s gross profit decreased 1% to $480 million, while gross margin contracted 120 basis points (bps) to 69.1%. However, underlying gross profit improved 4%.
Selling, general and administrative (SG&A) expenses dipped 1% from the year-ago quarter figure to $179 million. However, SG&A expenses increased 1% on an underlying basis. Further, advertising expenses fell 9% year over year to $91 million, while underlying advertising costs dipped 9%.
However, the fall in operating expenses was not enough to offset the fall in gross profit. Consequently, operating income plummeted 71% to $212 million, with operating margin contracting substantially to 30.5% from 99.5% in the year-ago quarter. On an underlying basis, operating income increased 13%.
Balance Sheet & Cash Flow
Brown-Forman ended fiscal 2017 with cash and cash equivalents of $182 million, long-term debt of $1,689 million and total debt of $2,149 million. The company’s total shareholders’ equity was $1,370 million as of Apr 30, 2017. In fiscal 2017, the company generated $639 million cash from operating activities.
On May 24, 2017, the company declared a regular quarterly dividend of $0.1825 per share on Class An and Class B shares. The dividend is payable on Jul 3, 2017, to shareholders on record as of Jun 5.
In fiscal 2017, Brown-Forman bought back about 11.9 million Class An and Class B shares for $561 million. On combining the share repurchases and $274 million worth dividends paid, the company returned a total of $835 million to shareholders in fiscal 2017.
Fiscal 2018 Guidance
While the company expects the perils of currency headwinds, as well as the volatile global economic and geopolitical environment to linger, it remains confident of persistent growth in underlying net sales and operating income in fiscal 2018.
Management projects 4–5% growth in underlying sales mainly backed by the Jack Daniel's family of brands, its premium bourbon and tequila brands. Further, growth is likely to come from new product launches including the Jack Daniel's Tennessee Rye and Slane Irish Whiskey, alongside the seeding of single malt scotch brands.
Underlying operating income is anticipated to increase in range of 6–8%. Further, the company estimates earnings per share in the range of $1.80–$1.90, including a modest negative influence from foreign currency headwinds, higher tax rate and the establishment of owned distribution center in Spain. Moreover, the company expects three year cost savings of $100 million (FY18-FY20) driven by better leveraging prior investments, such as production capabilities, route to market initiatives, brand innovation, homeplace assets, and its employees.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. There have been two revisions higher for the current quarter
At this time, Brown Forman's stock has a poor score of 'F' on both growth and momentum front. Following the exact same course, the stock was allocated also a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Brown Forman (BF.B) Down 1.9% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Brown Forman Corporation (BF.B - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Brown-Forman Declines as Q4 Earnings Lag Estimates
Brown-Forman Corporation reported fourth-quarter fiscal 2017, wherein adjusted earnings of $0.38 lagged both the year-ago figure and the Zacks Consensus Estimate of $0.40.
Net sales declined 4.8% year over year to $694 million, after deducting excise taxes. However, on an underlying basis (excluding negative currency impact and other adjustments), sales increased 4%. Moreover, the company’s sales, before accounting for excise taxes, came in at $887 million, down 4.9% from the prior-year figure of $933 million. The Zacks Consensus Estimate was pegged at $736.4 million.
Net sales were hurt by the persistence of currency headwinds and the divestiture of Southern Comfort and Tuaca in fiscal 2016. However, the company’s robust underlying performance came on the back of strong portfolio of premium American whiskey brands, along with its Jack Daniel’s trademark.
Quarter in Detail
Brown-Forman’s gross profit decreased 1% to $480 million, while gross margin contracted 120 basis points (bps) to 69.1%. However, underlying gross profit improved 4%.
Selling, general and administrative (SG&A) expenses dipped 1% from the year-ago quarter figure to $179 million. However, SG&A expenses increased 1% on an underlying basis. Further, advertising expenses fell 9% year over year to $91 million, while underlying advertising costs dipped 9%.
However, the fall in operating expenses was not enough to offset the fall in gross profit. Consequently, operating income plummeted 71% to $212 million, with operating margin contracting substantially to 30.5% from 99.5% in the year-ago quarter. On an underlying basis, operating income increased 13%.
Balance Sheet & Cash Flow
Brown-Forman ended fiscal 2017 with cash and cash equivalents of $182 million, long-term debt of $1,689 million and total debt of $2,149 million. The company’s total shareholders’ equity was $1,370 million as of Apr 30, 2017. In fiscal 2017, the company generated $639 million cash from operating activities.
On May 24, 2017, the company declared a regular quarterly dividend of $0.1825 per share on Class An and Class B shares. The dividend is payable on Jul 3, 2017, to shareholders on record as of Jun 5.
In fiscal 2017, Brown-Forman bought back about 11.9 million Class An and Class B shares for $561 million. On combining the share repurchases and $274 million worth dividends paid, the company returned a total of $835 million to shareholders in fiscal 2017.
Fiscal 2018 Guidance
While the company expects the perils of currency headwinds, as well as the volatile global economic and geopolitical environment to linger, it remains confident of persistent growth in underlying net sales and operating income in fiscal 2018.
Management projects 4–5% growth in underlying sales mainly backed by the Jack Daniel's family of brands, its premium bourbon and tequila brands. Further, growth is likely to come from new product launches including the Jack Daniel's Tennessee Rye and Slane Irish Whiskey, alongside the seeding of single malt scotch brands.
Underlying operating income is anticipated to increase in range of 6–8%. Further, the company estimates earnings per share in the range of $1.80–$1.90, including a modest negative influence from foreign currency headwinds, higher tax rate and the establishment of owned distribution center in Spain. Moreover, the company expects three year cost savings of $100 million (FY18-FY20) driven by better leveraging prior investments, such as production capabilities, route to market initiatives, brand innovation, homeplace assets, and its employees.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. There have been two revisions higher for the current quarter
Brown Forman Corporation Price and Consensus
Brown Forman Corporation Price and Consensus | Brown Forman Corporation Quote
VGM Scores
At this time, Brown Forman's stock has a poor score of 'F' on both growth and momentum front. Following the exact same course, the stock was allocated also a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.