CORRECTED - UPDATE 3-Brown-Forman cuts outlook, shares tumble

Tue Mar 10, 2009 12:26pm EDT

Related Topics

* Q3 adj EPS of 68 cts misses Wall St view of 77 cts

* Reported Q3 sales down 11 pct; underlying sales up 1 pct

* Cuts '09 EPS view to $2.70-$2.90 from $3-$3.20

* Shares down as much as 9.6 pct (Corrects first bullet point and sixth paragraph to show profit missed, rather than beat, expectations) (Recasts, adds share activity, comments from analyst, conference call, byline)

By Martinne Geller

NEW YORK, March 10 (Reuters) - Wine and liquor company Brown-Forman Corp (BFb.N) cut its fiscal-year outlook on Tuesday, due to the weak economy and stronger U.S. dollar, sending its shares down nearly 10 percent to their lowest level in more than four years.

The maker of Jack Daniel's whiskey, Finlandia Vodka, Southern Comfort liquor and Sonoma-Cutrer wine said sales of its super-premium brands had slowed in the quarter, as the recession led some consumers to "trade down" to less expensive brands and global distributors reduced their inventory levels.

"The condition of the global economy today and the mood of people over the last fifteen months, particularly the last six months, are obvious causes for concern," said Chief Executive Paul Varga.

"And while this may temper shorter-term growth rates for everyone, including Brown-Forman, we do not believe it diminishes the ... long-term opportunities which still exist to build our brands over time," he added.

Brown-Forman said net income rose to $123.4 million, or 81 cents per share, in the third quarter ended on Jan. 31 from $116 million, or 75 cents per share, a year earlier.

Excluding a gain disclosed on a conference call, profit was 68 cents per share, missing analysts' average estimate of 77 cents per share, according to Reuters Estimates.

But Goldman Sachs analyst Lindsay Mann said Brown-Forman's operating earnings fell short of her forecast, highlighting a growing risk for the company's profit in the coming year, due in part to currency fluctuations and weak consumer spending.

"The current ... multiple could be tough to maintain given mounting earnings risks," Mann said in a research note.

Brown-Forman's net sales fell about 11 percent to $784.1 million, in part because of the strong U.S. dollar, which reduces the value of overseas sales. Underlying sales, which exclude the effects of inventory destocking by distributors and currency fluctuations, rose 1 percent.

FOURTH-QUARTER PRESSURE

Finlandia Vodka's quarterly sales to distributors rose at a double-digit rate, while Jack Daniel's and Southern Comfort experienced declines.

The company lowered its 2009 earnings outlook, citing the impact of currency fluctuations and inventory reductions by distributors worldwide. The company now expects full-year earnings of $2.70 to $2.90 per share, down from its prior forecast of $3 to $3.20.

The new forecast includes the impact of a write-off related to dying agave plants, used to make tequila, and a gain from the sale of some Italian wines.

It also reflects the company's expectations for continued tight management of discretionary expenses, lower performance-related costs and a lower tax rate in the fourth quarter than the rest of fiscal 2009.

The stronger U.S. dollar is expected to shave 8 cents to 10 cents per share off earnings for the current fourth-quarter, contributing to a profit decline, the company said on a conference call.

What is more, company executives said that last year's fourth quarter had an unusually low tax rate, making for a more difficult comparison.

The company declined to give guidance for fiscal 2010, which begins in the spring, but executives did say they expect the U.S. spirits market to continue growing, although at slower rates than in the past.

Brown-Forman shares were down $3.42, or 8.3 percent, at $37.64 on the New York Stock Exchange, after falling as low as $37.12, their weakest level since November 2004. (Editing by Lisa Von Ahn, Dave Zimmerman)

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