Jack Daniel's remains the beverage of choice for many whiskey drinkers, and strong demand helped boost profits for Brown-Forman (NYSE:BF-B) this past quarter. But it wasn't enough for the premium wine and spirits distributor to overcome slower sales on Southern Comfort and rising costs overall. As a result, the company's narrowed its full-year profit estimates.

In the "glass-is-half-full" column, dour times in Eastern Europe have apparently driven people there to drink more vodka. Sales of Brown-Forman's Finlandia brand grew at a double-digit rate, driven by international demand that the distributor described as "robust." The quarter was also helped along by a better than three-finger serving of Casa Herradura tequila. In total, net sales splashed 16% higher in the quarter.

Yet when you look at the glass as half-empty, and back out the effects of a weak dollar, last year's tequila acquisition, and changes in global trade inventories, sales rose only 4% from last year. Global depletions, an industry-standard measurement of shipments from distributors to retail customers, grew for Jack Daniels and Finlandia, but its Southern Comfort brand -- source of those annoying SoCo ads -- fell both abroad and here at home. Stir in a comparatively stronger performance by the world's largest liquor distributor, Diageo (NYSE:DEO), and you have a pretty sour mix.

Higher grain prices, rising fuel costs, and a doubtful economy weighed on Brown-Forman's bottom line. Furthermore, advertising expenses were up 14% as Brown-Forman backed the Casa Herradura brand, a move that appears to have been worth the effort. While earnings rose 10%, the net margin shed 70 basis points compared to last year's third quarter.

With rising costs and lower volumes, Brown-Forman's margins are getting squeezed, which will take a toll on full-year earnings. The bartender lowered the high end of its fiscal 2008 earnings guidance to $3.50 a share, $0.04 lower than previous estimates. Considering that this quarter's estimates for continuing operations missed analyst projections by a nickel, it was probably a sober thing to do.

With growth in U.S. liquor sales expected to slow to 4.6% this year -- down from 5.6% in 2007, making this the slowest growth year since 2001, according to the Distilled Spirits Council -- investors may find Brown-Forman's premium valuation to Diageo, Constellation Brands (NYSE:STZ), and Fortune Brands (NYSE:FO) a hard thing to swallow.

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