Brown-Forman: Earnings Preview

Brown-Forman Corporation (NYSE:BF.B), one of the leading producers and distributors of premium alcoholic beverages in the world, is scheduled to report its third-quarter 2011 financial results before the opening bell on March 08, 2011. The Zacks Consensus expectations for EPS and revenues for the quarter are currently 86 cents and $870.0 million, respectively.

Second-Quarter 2011, Summary

Brown-Forman's quarterly earnings of $1.05 a share jumped 6.1% from 99 cents in the prior-year quarter, beating the Zacks Consensus Estimate of $1.00. The increase was primarily attributable to healthy sales and improved margins.

Brown-Forman's net sales recorded a growth of 1.0% to $905.7 million from $892.9 million in the prior-year quarter. The growth was primarily due to solid performance in Australia, Mexico, Spain, the U.K., Germany, and Turkey, offset by weak performance in the U.S. and Russia. Brand introduction and innovation also propelled net sales.

Management Guidance

Brown-Forman anticipates moderate improvement in global economic conditions and customer trends in fiscal 2011. Accordingly, the company expects earnings to range between $3.18 and $3.42 per share in fiscal 2011.

Third-Quarter 2011 Zacks Consensus

The analyst covered by Zacks expects Brown-Forman to post third-quarter 2011 earnings of 86 cents a share. The current Zacks Consensus Estimate reflects a growth of 17.8% from the prior-year quarter's earnings and ranges between 80 cents and 91 cents a share.

The current Zacks Consensus Estimate has remained stagnant over the last 30 days, as no analysts have changed their estimates.

With respect to earnings surprises, Brown-Forman has topped the Zacks Consensus Estimate three times over the last four quarters in the range from -9.52% to 11.32%. The average remained at 2.40%.

Our View

Brown-Forman is one of the leading producers and distributors of premium alcoholic beverages in the world. The company commands a strong portfolio of globally recognized brands, such as Jack Daniel's, Finlandia, Southern Comfort and Canadian Mist. This provides a competitive edge to the company and bolsters its well-established position in the market.

In order to enhance market share for its Jack Daniel whisky brand, Brown-Forman intends to focus on developed markets, such as France and emerging markets such as Russia, Poland and Mexico, where the whisky category is in the early stages of development.

During fiscal 2011, the company also seeks to spread out other brands within Jack Daniel's, like Gentleman Jack, Jack Daniel's Single Barrel and Jack Daniel's ready-to-drink beverages. Moreover, the company maintains a healthy balance sheet with cash and cash equivalents of $155.7 million and long-term debt-to-capitalization ratio of 20.5% at the end of second-quarter 2011.

The company faces intense competition from other well-established players in the industry, such as, Constellation Brands Inc. (NYSE:STZ) and Diageo plc (NYSE:DEO).

Currently, Brown-Forman maintains a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, our long-term recommendation on the stock remains Outperform.