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Factors Setting the Tone for Brown-Forman's (BF.B) Q1 Earnings

Zacks Equity Research
Updated

Brown-Forman Corporation BF.B is set to report first-quarter fiscal 2019 results on Aug 29, before the market opens. In the last-reported quarter, the company delivered a positive earnings surprise of 4.6%. Its fourth-quarter fiscal 2018 results marked the fourth straight earnings beat. It also marked the company’s seventh straight quarter of growth in underlying sales.

This leading producer and distributor of premium alcoholic beverages delivered a positive earnings surprise of 11.7% in the trailing four quarters.

What to Expect?

The question lingering in investors’ minds now is whether Brown-Forman will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is 39 cents per share, reflecting growth of 5.4% from the year-ago quarter. We note that the Zacks Consensus Estimate for the fiscal first quarter has remained unchanged in the last 30 days. The Zacks Consensus Estimate for revenues is pegged at $763.7 million, up nearly 5.7% from the year-ago quarter.

Brown-Forman Corporation Price and EPS Surprise

 

Brown-Forman Corporation Price and EPS Surprise | Brown-Forman Corporation Quote

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We note that the stock has outperformed the industry in the past year. The company’s shares have moved up 33.2% while the industry declined 6.8%.

 



Factors at Play

Brown-Forman is favored due to its solid brand portfolio, positive surprise history, expansion plans and shareholder-friendly moves. The company’s robust performance is attributed to persistent momentum in its focus categories and strength in Jack Daniel’s, led by the premium American whiskey portfolio. Further, balanced growth across geographies and its portfolio are aiding the top line.

The company is confident of capitalizing on its strategy for American Whiskey while benefiting from investments in its brands’ portfolio over the years. Consequently, the company expects to deliver yet another strong year, with solid earnings in fiscal 2019, backed by strength in its business and gains from the tax reform.

In fiscal 2019, the company estimates earnings per share of $1.75-$1.85, reflecting an 18-25% increase. This includes the tax rate of 21% and negative impact of 5 cents from higher interest expenses, foreign exchange and expected changes in inventories. Moreover, the company projects underlying sales growth of 6-7%.

Moreover, we expect the company’s continued focus on pricing, product innovation and expanding operations in emerging markets to boost its operational performance, and strengthen its market position.

However, Brown-Forman is likely to witness price increases for the Jack Daniel’s brand in the European Union due to the 25% tariff increase imposed on U.S. imports. The higher tariffs will be passed on to the consumers in the form of a 10% increase in prices for Jack Daniels, which will take effect in a couple of months due to advanced shipment policy in Europe. This may result in lower demand and imports in Europe, which can significantly hurt the company’s top line as Europe accounts for nearly one-fourth of its revenues. Further, the company anticipates a volatile global economic situation, mainly in emerging markets, and intense competition in developed economies to hinder results.

What the Zacks Model Unveils

Our proven model does not conclusively show that Brown-Forman is going to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Brown-Forman’s Earnings ESP of 0.00% and Zacks Rank #4 (Sell) make surprise prediction inconclusive.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

lululemon athletica, inc. LULU has an Earnings ESP of +1.02% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
American Eagle Outfitters Inc. AEO has an Earnings ESP of +2.44% and a Zacks Rank of 3.

Ross Stores, Inc. ROST has an Earnings ESP of +1.44% and a Zacks Rank #3.

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Brown-Forman Corporation (BF.B) : Free Stock Analysis Report
 
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Ross Stores, Inc. (ROST) : Free Stock Analysis Report
 
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