Brown-Forman to raise prices as economy rebounds

Wed Mar 7, 2012 1:06pm EST

(Reuters) - Jack Daniel's parent Brown-Forman Corp (BFb.N) reported a weaker-than-expected quarterly profit on Wednesday and narrowed its full-year forecast, hurt by weak sales and margin pressure.

But the company, whose pricing power was hurt in the recession's aftermath, said the time was becoming right for price increases, as a fragile recovery was leading some consumers to again buy premium alcoholic drinks.

Using the United States as a proxy, Brown-Forman Chief Financial Officer Don Berg said there was "a little bit better environment" in terms of consumer sentiment and willingness to spend.

Shares of Brown-Forman, which also makes Finlandia vodka and Southern Comfort, were down slightly in early afternoon trading.

During and after the recession, Brown-Forman saw more of its sales coming through retailers rather than bars and restaurants as consumers cut back on going out. That ended up pressuring margins, the company said, since consumers tend to be more sensitive to prices when shopping at stores.

As a result, sales growth was driven almost wholly by increased sales volume, rather than price increases, the company said. But the company is now beginning to raise prices, as it looks to boost its margins.

"Timing is becoming more favorable to reinstate price increases," the company said. The company is also facing higher excise taxes in countries including France and Britain, and higher costs for grains, glass and fuel -- increasing the need to raise prices for customers.

The company said it does not expect much pricing in fiscal 2012, which will end this month, but is optimistic about pricing power in fiscal 2013.

In the third quarter, which ended on January 31, net income fell to $133.1 million, or 93 cents per share, from $140.7 million, or 96 cents per share, a year earlier.

Net sales slipped 0.4 percent to $959 million.

Analysts on average were expecting earnings of $1 per share and sales of $1 billion, according to Thomson Reuters I/B/E/S.

But excluding the impact of items such as currency exchange and its exit from a wine business, sales rose 7 percent.

Brown-Forman cited strong gains in the German, Russian and Canadian markets, compared with weaker performances in markets such as China and Greece.

The company said it now expects full-year earnings of $3.50 to $3.65 per share, compared with a previous forecast of $3.45 to $3.70 per share. Analysts on average had been expecting $3.65 per share.

For the current fourth quarter, the company said it expects high single-digit growth in net sales and operating income.

Brown-Forman shares were down 1 cent at $80.12 in early afternoon trading at the New York Stock Exchange.

(Reporting By Martinne Geller and Phil Wahba in New York; Editing by Gerald E. McCormick and Maureen Bavdek)