Why the Big 3 Will Propel Brown-Forman Corp to New Heights

Brown-Forman increased its earning per share by 17% for the quarter ending April 30. Here's three reasons why this is only the beginning for the American whiskey maker.

Jun 13, 2014 at 11:31AM

The NBA Finals just started and led by its "Big 3" LeBron James, Dwayne Wade and Chris Bosh, the Miami Heat are trying to win their third consecutive NBA title. Brown-Forman (NYSE:BF-A)(NYSE:BF-B) also has its "Big 3" -- whisky, flavored whiskey, and premium whiskies, which elevated its earnings per share to $0.62 -- up 17% year over year -- for the quarter ending April 30.

Flavor sells
Brown-Forman watched as its flavored whiskey, Jack Daniel's Tennessee Honey (launched just four years ago) depleted over one million cases. This makes it the 20th largest brand selling higher than $25 for a 750ml bottle. Depletions categorize shipments sent directly to retailers or distributed to wholesale and retail customers. The industry uses this metric to approximate consumer demand.

Brown-Forman's CFO, Jane Morreau, stated that flavored whisky was "driving some of the most explosive growth that we've seen in the spirits industry in years." So expect to see Brown-Forman aggressively go after this niche. It is already testing a cinnamon-flavored version, called "Tennessee Fire," in three states. 

Premium/Super/Ultra Premium American whiskey sells
In addition to making hay with its flavored whisky, Brown-Forman's Jack Daniel's continues its reign as the undisputed champion of the premium whiskey segment across the globe. It moves nearly twice as many cases each year as its closest competitor, Suntory-owned Jim Beam.


Diageo (NYSE:DEO) is working to make a run at the category, but currently sells less than a million cases of Bulleit, its premium bourbon. By comparison, Jack Daniel's sold around 11 million cases of its flagship Tennessee Whiskey in 2013, and Jim Beam moved over 6 million cases.

Brown-Forman also saw its portfolio of super and ultra premium whiskies, which includes Woodford Reserve, increase underlying net sales by 19% in its current fiscal. Consumer demand for premium, super and ultra premium American whiskies is building momentum worldwide and is likely why Brown-Forman competitor Diageo recently announced plans to build a new America whiskey distillery in Kentucky. 

Emerging markets driving growth
Unlike some of its competitors, Jack Daniel's has widespread distribution across many geographical areas, and has minimal exposure to one emerging market, like China. In 2014, Brown-Forman saw underlying net sales gains across most of its emerging markets, including Turkey (32%), Brazil (44%) and Russia (23%). Even China saw net sales grow 35%, while Southeast Asia, led by Thailand and Indonesia increased underlying net sales by 27%. Net sales in CIS countries, Ukraine, Kazakhstan, and Georgia also climbed 36% as Emerging Africa increased underlying net sales by 29%. 

Overall emerging market net sales grew 9%. By comparison, Diageo's net sales in emerging markets only grew by 1.3% for the six months ending December 31.  Weakness in China and Nigeria attributed to its lackluster results.

A Fool's summary
To sum up, premiumization and robust global demand for American whiskey brands are vibrant trends building, not losing, momentum despite some slowdowns in a few emerging markets. Brown-Forman expects 6% to 8% growth in reported and underlying net sales in fiscal year 2015, as Jack Daniel's Tennessee Whiskey and Tennessee Honey continue to expand global share. Look for it to hit, and possibly surpass, those expectations.

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Chris Brantley has no position in any stocks mentioned. The Motley Fool recommends Diageo (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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