Executives on Brown-Forman Corp.’s fourth-quarter earnings call Wednesday played down concerns about the threat of tariffs on bourbon imports into Mexico and Europe, but their efforts failed to revive a flagging stock.
Jane Morreau, chief financial officer of the distributor of Jack Daniel’s, Woodford Reserve, Old Forester, Early Times, Collingwood, Canadian Mist, Coopers’ Craft and Slane Irish whiskey, as well as a range of Scotches, tequilas, vodkas and wines, said the company is expecting fiscal 2019 to look a lot like fiscal 2018, “notwithstanding our concerns around the potential for retaliatory tariffs on American spirits.”
The European Union announced Wednesday that it will put tariffs on American goods starting in July as a response to President Donald Trump’s decision not to exempt the EU from steel and aluminum tariffs. The EU tariffs will apply to products worth roughly $3.4 billion, including bourbon whiskey. Mexico said Tuesday that it is putting a 25% tariff on bourbon imports, alongside a range of U.S. staples.
“We have been watching the investments very closely as the situation remains fluid, and there is great uncertainty around what retaliatory measures, if any, could be implemented on what, starting when, at what rate, or for how long,” said Morreau, according to a FactSet transcript.
“So while it’s premature to comment on the potential impact on our business, we’re on top of the situation and have taken measures over the last few months to mitigate risks such as increasing our inventory levels in non-U.S. markets where we own our own distribution,” she said.
Roughly half of Brown-Forman’s revenue is generated in the U.S., with Europe accounting for a quarter and the rest of the world the remainder. Mexico accounts for 5% of revenue, according to FactSet estimates based on its GeoRev proprietary algorithm.
Brown-Forman owns distribution in about two-thirds of those markets, said Morreau.
Earlier, the company said it had net income of $110 million, or 23 cents a share, in its fiscal fourth quarter to April 30, down from $144 million, or 30 cents a share, in the year-earlier period. Sales rose to $733 million from $694 million. The FactSet consensus was for EPS of 22 cents and sales of $755 million.
The company said it is now expecting fiscal 2019 EPS of $1.75 to $1.85, compared with a FactSet consensus of $1.82.
Paul Varga, the outgoing chief executive, said the guidance did not include any potential hit from tariffs, calling it a “tough, tricky situation.” He said it would dangerous to make broad statements across markets, because the company would react on a market-by-market basis.
In those markets where Brown-Forman has its own route to market — most of Europe — it has more flexibility to cope. But in places where it relies on third-party distributors, it will be more challenging.
“So this is going to be a bit surgical, I think, in the way that we respond, but know that we have lived through these sorts of dynamics before other than the rapid excise tax increases which have happened periodically,” he said. “We’ve had supply shortages [where] maybe you get a big FX swing, something like that.”