Brown-Forman

  • The Jack Daniels and Old Forester Bourbon owner, Brown-Forman, reported flat net   sales in Q3 as bar closures due to Covid-19 weighed on results.

  • The   firm’s net sales for Q3, ending 31 January 2021, were recorded at $911   million, with operating profit falling by 8% to $281 million. For the first   nine months of the fiscal year, the company’s reported net sales of $2,649   million which again was flat compared to the same prior-year period.   Year-to-date reported operating income increased 10% to $998 million and   diluted earnings per share grew 12% to $1.63. The company reported an   improvement in operating margins to 37.7% from 34.1% in 2020. These margins   remain above competitors such as Diageo (33%) and Pernod Ricard (32%)   highlighting the quality of the company. Free cash flow improved to $531   million from $425 million in the corresponding 9 months in 2020. Capital   allocation remained impressive with return on invested capital reported at   23%.

  • On a   regional basis, sales in the US grew 7%, led by premium Bourbons, the Jack   Daniel’s ready-to-drink (RTD) portfolio, Jack Daniel’s Tennessee Honey,   Gentleman Jack, and Tequila brands Herradura and El Jimador. Emerging markets   returned to growth (up 1%) during the year to date, driven by Brazil, Poland   and China. These increases were offset by declines in Southeast Asia, India   and several Latin American markets. Travel bans and Covid restrictions   significantly affected travel retail sales which were down 54%.

  • Brown-Forman has been around for 150 years implying it has survived through a number of adversities including Prohibition and as such we remain confident that it will survive and thrive post the current pandemic. The company has an outstanding track record of capital allocation with returns on capital consistently above 20%. This quality has seen the company increase by over 100-fold over the last 40 years. We remain confident that Brown-Forman will continue to grow steadily and create shareholder value for investors over the years to come. However, on the current PE multiple of close to 40x we would wait for a more attractive entry point.

Brown-Forman