Brown-Forman posts 3Q profit below estimates

LOUISVILLE, Kentucky - Liquor company Brown-Forman Corp. offset mixed sales results in its third quarter by squeezing advertising and other expenses and selling two wine brands, but its adjusted results fell short of Wall Street's expectations.

The maker of Jack Daniel's Tennessee Whiskey, Southern Comfort and Finlandia vodka lowered its full-year earnings outlook to between $2.70 and $2.90 per share, citing the effect of the stronger U.S. dollar and cuts in inventory of its brands worldwide.

In December, it had forecast annual earnings for fiscal 2009 of $3 to $3.20 per share. Its actual earnings in fiscal 2008 were $2.84 per share.

Net sales in the quarter dropped 11 percent to $784.1 million, hurt by the stronger U.S. dollar.

For the three months ended Jan. 31, Brown-Forman posted net income of $123.4 million, or 81 cents per share, up 6 percent from $116 million, or 75 cents a share, a year ago.

The third-quarter results include a one-time gain of 12 cents per share from the sale of two wine brands, Bolla and Fontana Candida, that are produced in Italy.

The 69-cent-per-share adjusted earnings fell well short of the average estimate of 77 cents per share on sales of $903.1 million from analysts polled by Thomson Reuters, who exclude one-time items.

Brown-Forman's Class B shares fell $3.88, or 9.45 percent, to $37.18 in midday trading Tuesday.

Goldman Sachs analyst Lindsay Mann said the company's lower full-year earnings projection "draws attention to the mounting risks" for the next fiscal year.

Mann said in a note to investors that Brown-Forman's third-quarter performance "delivered some pretty clear signs that profit growth has weakened." Looking ahead, Mann noted that Brown-Forman's gross profit fell 14 percent in the quarter and said the hit from the stronger dollar could be a drag on profits for the next few quarters.

For the nine-month period ended Jan. 31, Brown-Forman posted earnings of $354.8 million, or $2.34 per share, up from $340.7, or $2.19 per share. Net sales were flat at $2.5 billion.

In the most recent quarter, Brown-Forman cut advertising expenses 19 percent and reduced its selling, general and administrative expenses 21 percent.

In a conference call with industry analysts, company Chief Executive Paul Varga said Brown-Forman is taking a more conservative approach to advertising because "in many, many markets the receptivity of consumers is lower than it would have been a year or two ago." The company said it is shifting some advertising dollars to in-store promotions and discount programs.

Don Berg, the company's chief financial officer, said global case sales for Jack Daniel's declined by a percentage in the high single digits in the third quarter, but were up in the low single digits for the first nine months of the fiscal year.

"We believe these softer results can be attributed in large part to inventory reductions throughout the supply chain," Berg said.

The premium Gentleman Jack, part of the Jack Daniel's portfolio, posted a double-digit gain in case sales in the quarter, though sales moderated slightly, Berg said.

Southern Comfort's global case sales fell during the quarter, continuing the brand's sluggish performance over the past year and a half. A similar decline in the U.S. was due in part to inventory reductions and weakness in sales in restaurants and bars, Berg said.

Finlandia continued to show strong growth, with its yearly case sales passing the 3 million mark for calendar 2008, up from 2 million cases in 2005, the company said.

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