What Makes Brown-Forman One of America's Best Companies

From parties to Prohibition, Louisville, Ky.-based Brown-Forman (NYSE: BF-B  ) has survived. Formed in 1870, the liquor company has enjoyed the benefits of operating in one of the world's most ancient industries while navigating its way through more difficult periods, including those marked by increasing awareness about the dangers of alcoholism, binge drinking, underage imbibing, drunk driving, and health concerns in recent history.

Among Brown-Forman's 25-plus brands, Jack Daniel's is the most significant. As of statistics released in February 2012, Jack Daniel's is the fifth-largest premium spirits brand and the biggest selling American whiskey brand in the world by volume. Other important brands include Finlandia, Southern Comfort, and Canadian Mist.

With Brown-Forman's 150th anniversary coming in 2020, the company distilled its purpose thusly: "Enriching life: We enrich the experience of life by responsibly building beverage alcohol brands that thrive and endure for generations." That's the spirit.

The case for Brown-Forman
Many reviews cite decent benefits and pay for employees, as well as great perks like a gym and in-house cafe. The company has a Chief Diversity Officer and a Diversity Council working to foster diversity and inclusion. Furthermore, Brown-Forman gained a perfect score on the Human Rights Campaign's 2013 Corporate Equality Index for the third year running, further lauded for its "Best Places to Work for LGBT Equality."

Brown-Forman provides healthy initiatives, such as on-site health screenings, on-site registered nurses, and employee assistance programs that provide counseling and advice during employee crises.

Consumer fondness for Brown-Forman's major brands probably stems from its extremely venerated place in American history. The Jack Daniel's Distillery is the oldest registered distillery in the U.S., and actually has distinction on the National Register of Historic Places.

But Brown-Forman hasn't simply rested on the laurels of the existing attributes of brands like Jack Daniel's and Southern Comfort. The company recently branched out into a very new space: flavored whiskey. Two new beverages, Jack Daniel's Tennessee Honey and Southern Comfort Fiery Pepper (which, contrary to its name, sounds a bit uncomfortable), have been hits and have actually drawn new consumers into its customer base. Brown-Forman has also been expanding its presence into international markets, drawing even more fans abroad.

Thinking about drinking
You'd think a liquor company would be intent on making sure its customers consume as much booze as possible without suffering from alcohol poisoning, but Brown-Forman is taking a far more customer-friendly attitude. The company has taken a strong stand regarding responsible alcohol consumption versus alcohol abuse by adults and minors. It has a marketing code in place to target proper audiences in appropriate ways. In 2009, it launched a website,, which addresses the social issues associated with alcohol. Whether customers (or shareholders) believe it or not, Brown-Forman's emphasis on responsibility and moderation has long-term interests in mind.

Brown-Forman has been increasing sales and it's a profitable company, too. Its five-year total return is an impressive 89.7%, and its five-year total revenue growth is 3.65%. Its median return on capital is 16.6%. Brown-Forman is also a dividend payer, with a five-year average dividend yield of 2%.

Furthermore, the company is pouring a super-responsible touch into running its business. It's worked hard to raise awareness of the social implications of alcohol abuse, and is involved in many initiatives such as The Ad Council's "Buzzed Driving Is Drunk Driving" campaign, which Brown-Forman also pushed through its social media outlets. It also developed a board game and an online module to help train employees on responsible drinking and being good brand stewards.

Brown-Forman doesn't slack on corporate giving; it supports educational and cultural causes, provides a multiyear grant to The Healing Place, which provides recovery services to those suffering from alcohol and other addictions, and it offers employee volunteer hours. The company is also involved in sustainability initiatives, addressing energy, greenhouse gas, water, waste, packaging, and agriculture issues. Brown-Forman is using more energy-efficient vehicles and renewable energy, and is reducing or repurposing waste. It also participates in the Climate Disclosure Project's annual assessment and was included in the CDP's Leadership Index in 2010. Brown-Forman has received recognition from Corporate Responsibility Magazine and The Human Rights Forum.

Risks to consider
Brown-Forman's 10-K makes it clear just how significant its Jack Daniel's brand is, describing it as "vital to our overall performance." Any decline or disruption in the Jack Daniel's channel would have a material negative impact on Brown-Forman's profitability. Some of its other brands, like Southern Comfort, have been losing some share.

Brown-Forman was one of the many companies that rushed to pay out a "special dividend" to shareholders ahead of the end of 2012, and it financed that dividend with debt, which doesn't sit well with investors. However, its debt level is still modest.

Risks abound beyond the possibility of government regulation or consumer backlash against booze. Brown-Forman relies on commodities like corn, rye, and barley for its products, as well as water. Water scarcity issues and agricultural problems like last year's drought are high on the list of possible problems for the distiller.

Foolish bottom line
Brown-Forman genuinely appears to want to be part of the solution instead of the problem as far as irresponsible alcohol use is concerned, showing that the type of near-term profits that would result from the increased volume of sales are not its only concern. Its views on sustainability and the fact that it's one of the few companies that actively acknowledge the dangers of climate change in its 10-K risk factors shows an ability to deal with risk and be proactive. Brown-Forman is one of America's best companies due to its forward-thinking nature, along with its ability to analyze and address the toughest parts of its sometimes controversial core business, and evolve.

Click here to read about the rest of The 25 Best Companies in America.


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