Alcoholic Beverage manufacturer Brown-Forman Corp. (BFA,BFB) Wednesday reported a drop in its profit for the first quarter of fiscal 2011, hurt lower margins and higher SG&A costs. Total net sales were up 1%. Despite its weak quarterly results, the company affirmed its earnings outlook for fiscal 2011.
The company's first-quarter net income declined to $111.4 million or $0.76 per share from $121.4 million or $0.81 per share last year. For the preceding fourth quarter, the Louisville, Kentucky-based company reported net income of $72.7 million or $0.49 per share.
Analysts polled by Thomson Reuters expected the company to report earnings of $0.84 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales were $744.9 million, up 1% from $737.9 million in the prior-year quarter. Five analysts had a consensus sales estimate of $758.39 million for the quarter. The company had posted net sales of $733.0 million in the fourth quarter. In the first quarter, the company's underlying net sales rose 3%.
Commenting on the results, Paul Varga, Brown-Forman's chief executive officer, said, "In what remains a sluggish environment, we performed within our expectations for our first quarter. Continuing our trends of the prior two quarters, we posted good underlying growth in sales and gross profit. This growth was driven by a strong net sales performance internationally."
Brown-Forman, one of the largest American-owned spirits and wine companies and among the top 10 largest global spirits companies, said that its net sales growth was broad based, with key brand contributions from the Jack Daniel's family, el Jimador, New Mix, Sonoma-Cutrer, Woodford Reserve, Tequila Herradura, and Finlandia, while Southern Comfort posted a decline. The company has more than 35 brands in its portfolio of wines and spirits.
The company also said that its international operations saw the strength of several markets including Australia, Germany, Mexico, the U.K., and Turkey, offset by soft performance in the U.S. Brown-Forman sells its brands in more than 135 countries and has offices in cities across the globe.
Gross margin for the quarter was 50.9%, compared with 51.5% in the previous year. Selling, general, and administrative expenses rose 13%to $131.9 million from $117.2 million in the prior-year quarter.
Among peers, Constellation Brands, Inc. (STZ,STZ-B) has reported a sharply higher year-over-year profit for its first quarter, as nearly flat quarterly net sales were offset by lower restructuring charges. The Victor, New York-based world's largest wine company's first-quarter net income was $49.1 million or $0.22 per share, compared with $6.5 million or $0.03 per share a year ago, with net sales totaling $787.5 million.
Going ahead, Brown-Forman continues to expect fiscal 2011 earnings of $2.98 to $3.38 per share. Analysts expect the company to report earnings of $3.27 per share for the full-year 2011.
The company also continues to anticipate underlying operating income growth in the mid-single digits for fiscal 2011. In addition, net sales are still expected to grow in line with trends of the prior two quarters.
The company stated that, even though current foreign exchange rate levels place its expected results in the upper half of the guidance, it remains cautious this early in the year, particularly before the important holiday period.
The company said many uncertainties are persisting including potential improvements or deterioration of the global economic and consumer environments, mainly relate to the U.S. market and the Southern Comfort brand.
BFA closed Tuesday's trading at $61.08, up $0.09, on a volume of 1,800 shares.
BFB rose $0.20 and ended trading at $61.29 on Tuesday, on a volume of 675,300 shares.
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