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Brown-Forman Projects Improved U.S. Share This Year After 4 Percent Sales Rise In Fiscal 2011

June 9, 2011

Boosted by a strong second-half performance, Brown-Forman’s net income increased by 6% to $802 million for its fiscal year ended April 30th, while sales rose by 4% to $3.4 billion. This year, the company is banking on its innovation campaign across a number of brands—especially Jack Daniel’s and its new Tennessee Honey liqueur—to bring further gains in U.S. market share, where the decline of Southern Comfort has continued to be a drag on results.

The recently rolled out Tennessee Honey is seeing good early response, Brown-Forman CFO Don Berg said in a conference call today. Paul Varga, B-F’s chairman and CEO, said he expected the honey liqueur to become “a leader in the flavored brown spirits segment,” where portfoliomate Southern Comfort has struggled under increased competition from brands like Jim Beam’s Red Stag and Wild Turkey American Honey. Southern Comfort’s global depletions, half of which are in the U.S., fell 3% to 2.5 million cases in the last 12 months, despite growth in its RTD range.

Brown-Forman credited Jack Daniel’s with driving sales growth over the full year, with an 8% global depletions gain to 16 million cases across its brand family. In addition to Tennessee Honey, Jack Daniel’s is seeing innovations this year in new spirits-based RTDs and new packaging for the core brand. Varga said the core Jack Daniel’s repack would “honor the old-time feel but also make the brand more contemporary and appealing for global markets.” Jack’s global expansion has been well documented, as it now sells more than half its volume outside the U.S. market. That trend continued in fiscal 2011, with the core brand’s depletions rising 8% internationally, while the U.S. performance was flat. Jack Daniel’s continues to drive Brown-Forman’s growth in global areas like France, the U.K., Germany, Poland, Turkey, Mexico and Australia.

Berg said the recent sale of Fetzer (including the Fetzer and Bonterra brands) to Concha y Toro for $238 million would provide funds for the company’s innovation drive, which also includes new packaging for Finlandia vodka this year. Questioned on why B-F would sell Fetzer even though it remained profitable, Varga said: “It’s one thing to have a profitable base, and it’s another (to see) where that base is heading.”

Brown-Forman said it expects share increases in the U.S. and solid sales growth in the current fiscal year, but it cautioned that cost increases would likely cut into the bottom line. Varga said the company would pursue gradual hikes on the pricing front, “but it’s not realistic to think we can get the kinds of increases today that we were seeing across the industry in 2005 or 2006.” He added that the beer industry, which has moved to increase pricing more aggressively of late, appears to be paying for it with reduced consumption occasions. In a question related to competitor Fortune Brands becoming a pure-play spirits marketer, Varga also noted that “over the last 12 months Fortune, as much as any competitor, is putting downward pricing pressure on in the U.S. You can see it in their price-mix. So I’d emphasize that Jack Daniel’s is holding up pretty well despite that.”

Brown-Forman Beverages – Leading Brands In the U.S.1
(millions of nine-liter case depletions)
Calendar Year Percent Change5
Brand 2008 2009 2010 2008-2009 2009-2010
Jack Daniel’s2 4.71 4.68 4.65 -0.6% -0.7%
Canadian Mist 1.82 1.80 1.71 -1.3% -4.6%
Korbel 1.24 1.27 1.29 2.4% 1.3%
Southern Comfort 1.46 1.36 1.28 -6.5% -5.7%
Jack Daniel’s RTDs 0.91 0.90 0.79 -1.0% -12.0%
Early Times 0.65 0.66 0.62 0.9% -5.9%
Sonoma Cutrer 0.28 0.26 0.30 -6.1% 12.2%
El Jimador 0.17 0.22 0.27 28.2% 25.7%
Finlandia3 0.31 0.30 0.26 -0.7% -15.8%
Total Top Nine4 11.53 11.45 11.16 -0.8% -2.5%
1 excludes Fetzer, which was sold to Vina Concha y Toro on April 15, 2011
2 excludes Single Barrel, Gentleman Jack and RTDs
3 includes flavors
4 includes entire Jack Daniel’s whiskey family, excluding RTDs
5 based on unrounded data 


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