Source: WSJ
By MELISSA KORN And MELODY WARNER
Jun 9th


Brown-Forman Corp.'s fiscal fourth-quarter earnings more than doubled as the wine and liquor company benefited from an asset sale and low tax rate, while also seeing sales and margins improve.


In April, the company sold the bulk of its California-based wine operations, including Fetzer Vineyards, to Chilean wine producer Vina Concha y Toro SA for $238 million. Those wines had been a drag on growth in recent years, with poor sales and low margins.


For the quarter ended April 30, profit jumped to $165.4 million, or $1.13 a share, up from $72.7 million, or 49 cents a share, a year earlier. Excluding the impact of the wine sale, per-share earnings in the latest period totaled 80 cents.


Sales rose 8% to $791.3 million. Gross margin widened to 53.5% from 51.5%. Brown-Forman reported an effective tax rate of 22.9% in the latest quarter, compared with 35.2% in the prior-year period.


Chief Financial Officer Don Berg said on an earnings conference call that higher input costs, paired with continued difficulty in raising sale prices, would pressure margins. While Mr. Berg noted Brown-Forman hedges about 55% to 57% of its commodity exposure, it won't be as protected in fiscal 2012. Still, Mr. Berg said discounting has slowed and they expect "gradual improvement" in the company's pricing power.
The wine-asset sale helped the company boost its cash holdings. It reported cash and equivalents of $567 million at April 30, compared with $232 million a year earlier.


Brown-Forman, whose brands include Jack Daniel's Tennessee Whiskey, Southern Comfort liqueur and Finlandia vodka, has seen revenue improve in the past few quarters as consumers' spending and visits to bars and restaurants rebound from recession levels.


Continuing positive trends should remain for the current fiscal year, the company said, with growth expected across all geographic regions. Brown-Forman forecast fiscal 2012 per-share earnings between $3.45 and $3.85.


As the U.S. market remains relatively sluggish, Brown-Forman has focused its efforts more on international markets. Jack Daniel's saw depletions, or sales to retailers, increase 4% internationally in the fourth quarter but decline 3% in the U.S. Depletions of el Jimador tequila proved strong internationally and domestically, while Finlandia vodka struggled amid a distribution change in Russia.