LOUISVILLE, Ky. (WDRB) – Brown-Forman Corp. on Wednesday posted what executives called “solid” but “not great” results for the company’s fiscal year as tariffs imposed on American whiskey in Europe continue to be a drag on the company’s growth.
The Louisville-based spirits giant said its sales grew 2%, to $3.3 billion, in the year ended April 30, a slowdown from the 8% sales growth Brown-Forman saw in the 2018 fiscal year.
“(I would) generally call it a good year in maintaining consumer momentum (but) not a great year given all the headwinds we are facing,” CEO Lawson Whiting told analysts on an earnings conference call.
Excluding special factors -- like the strength of the U.S. dollar relative to foreign currencies – Brown-Forman’s sales growth was 5% for the year.
That figure would have been 6%, Whiting said, but for the 25% tariffs imposed by the European Union in June 2018, which disproportionately affect Brown-Forman’s best-selling Jack Daniels Tennessee Whiskey.
European regulators raised the cost of American whiskey, including bourbon, to retaliate against tariffs President Trump placed on imported steel and aluminum earlier in 2018.
The whiskey tariffs were seen as an effort to squeeze the signature industry of Kentucky, home of U.S. Sen. Maj. Leader Mitch McConnell, a Trump ally.
“We view these tariffs, really, from the EU as a targeted campaign right at Brown-Forman, an American business headquartered in Kentucky,” Whiting said on Wednesday.
Chief financial officer Jane Moreau said Brown-Forman has been "caught in the cross hairs of the world of retaliatory tariffs."
Yet, the company assumes they’ll remain in place through its current fiscal year, or April 30, 2020.
“It’s a tough situation and we continue to actively work with our leaders in both the US and abroad when we seek a quick resolution to these tariffs,” Whiting said.
Brown-Forman faces other challenges, executives said Wednesday, including the relative strength of the U.S. dollar, which squeezes profits overseas, and a rapid rise in the cost of agave syrup, a key input for the company’s tequila brands, Herradura and El Jimador.
Whiting, a company veteran who took over at the end 2018, said Brown-Forman’s moves over the last decade to reshape its portfolio are paying off, as the company is well-positioned in growing categories like American whiskey (including bourbon), tequila, Irish whiskey and scotch.
Meanwhile, Brown-Forman sold off brands or has minimal business in “unattractive” categories like wine, beer, liqueur and rum, Whiting said.
“We really don’t have a leaky bucket anymore which is a benefit to our business,” he said.
The company has been “on the sidelines” in one growth area: gin, Whiting said. He said Brown-Forman hopes to soon have “news” on how it plans to get into the gin business.
Executives are also expecting a boost from an apple-flavored version of Jack Daniels that will be released in the next year. It will be the third flavored iteration of Jack Daniels after the honey and “Fire” versions.
Whiting said Brown-Forman hopes “to win back some (market) share” from Crown Royal, whose apple-flavored Canadian whiskey has taken a bite into Jack Daniels.
Other items of interest from the company’s year-end earnings call:
- After about a year in operation, Brown-Forman’s Old Forester distillery and tourist destination on Main Street in downtown Louisville is on track to reach 100,000 visitors “later this summer,” chief financial officer Jane Moreau said.
- Woodford Reserve, the company’s premium bourbon, will eclipse 1 million nine-liter cases in the company’s current fiscal year. Created in 1997, it took ten years for Woodford Reserve to reach 100,000 cases, Whiting said. “We do believe the best is yet to come with significant run room (for Woodford),” he said.
- Whiting said the "bourbon renaissance" that began roughly a decade ago "is just getting started" because "younger consumers" place a premium on "authenticity" and "provenance."
He said Brown-Forman is often asked how long the bourbon boom can go on.
"Believe me, it's something we study closely," Whiting said.