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Jack Daniel’s leads Brown-Forman results higher as both Dickel and Prichard’s plan expansion

Posted on Thursday, June 12, 2014 at 11:58 am

LYNCHBURG — Spirits maker Brown-Forman Corp. said last week that its fourth-quarter net income rose 17 percent to cap a strong year led by its flagship Jack Daniel’s brand, which showed its muscle in the highly competitive whiskey market.

The company behind such other brands as Southern Comfort, Finlandia and el Jimador predicted another round of higher overall sales in the next fiscal year, driven by the continued global growth of the Jack Daniel’s brand.

“I believe that our leadership position in premium American whiskey, led by the one and only Jack Daniel’s trademark, and a very balanced geographic contribution, underpin the company’s differentiated performance,” said Brown-Forman CEO Paul Varga.

Net sales for the entire Jack Daniel’s brand increased 8 percent for the full year, excluding currency swings, the company said. Jack Daniel’s Tennessee Honey crossed the 1 million case milestone during the year, it said.

Whiskey shortage?

The report comes on the heels of a report in The Tennessean that suggests a whiskey shortage could be looming.

According to distillers and industry observers, who point to a worldwide boom in consumption of bourbon and whiskey — and in particular Tennessee whiskey, the fastest-growing variety — the upswing could put a premium on premium whiskey as American whiskey enjoys a revival.

Exports of bourbon and Tennessee whiskey exceeded $1 billion last year, up from $400 million just a decade ago. Industry experts say gains in whiskey sales are outpacing production increases by at least 2-to-1.

Driving the growth has been the easing of tariffs on whiskey in many international markets, including China, Australia and South Korea, opening the door to American whiskey imports.

That means big business both here, where Jack Daniel continues to lead the way, and in Tullahoma at nearby George Dickel.

There are also about 25 distilleries in Tennessee now, ranging in size from Jack Daniel down to the small craft distillers like Short Mountain Distillery near Woodbury and Prichard’s Distillery in Kelso.

Continued growth

Prichard’s Distillery at Fontanel will utilize a new French-style copper still, called an “Alembic Still”. Prichard’s will continue to apply their small-batch technique to the production of exceptional, handcrafted American spirits. (Photo courtesy Fontanel Resort)

Prichard’s Distillery at Fontanel will utilize a new French-style copper still, called an “Alembic Still”. Prichard’s will continue to apply their small-batch technique to the production of exceptional, handcrafted American spirits. (Photo courtesy Fontanel Resort)

All the while, it seems as though they’re each growing rapidly, regardless of their market share. Diageo PLC, which owns Dickel, announced plans to build a new distillery in Kentucky and Prichard’s just opened a new distillery at Fontanel Mansion just outside of Nashville in Whites Creek.

“Distilleries brand the state,” said Billy Kaufman, president of the Tennessee Distillers Guild, noting that Jack Daniel’s alone has made Tennessee whiskey a household name around the world.

Jack Daniel’s brands account for about 95 percent of the state’s whiskey exports.

“It’s an exciting time to be in the whiskey business,” contends Jack Daniel’s master distiller Jeff Arnett. “A rising tide raises all ships, and the craft distillers have been good for all the big American whiskey brands. We’ve definitely seen a lift from it. They’re making whiskey more exciting and bringing more people into the whiskey segment. They’re popping up all over, in convenient tourist places, and they’re driving more tourism business for us. It’s fascinating.”

“We’ve been slowly adding warehouses, as well as fermenting and distilling capacity,” said Arnett.

Just last summer the distillery announced a $103 million expansion, which will allow it to triple production. The expansion will include additional stills, barrel warehouses and related infrastructure to support the expanding operations. Construction on the planned expansion is well underway, proving that Jack Daniel was well aware of the shift toward American whiskey.

To match its whiskey production growth, Brown-Forman recently opened a new barrel production facility in north Alabama to serve Jack Daniel.

Diageo’s proposed 300-acre distillery site will also include six barrel storage warehouses. Barrel storage has become a legal issue for Diageo here in Tennessee, where the company has sued the state to halt the enforcement of a law requiring whiskey made there to be stored in-state.

Dickel said it stores all of its Tennessee Whisky at its distillery in Tullahoma, but other products made there are stored at a company-owned distillery in Kentucky. The federal lawsuit claims that state law violates interstate commerce rights under the U.S. Constitution.

If the law isn’t tossed out, the company said it would have to decide whether to expand storage capacity in Tennessee or reduce production of spirits other than George Dickel Tennessee Whisky at the distillery, which would likely lead to job cuts there.

Prichard’s owner and distiller Phil Prichard, whose products include rum and whiskey, said a whiskey shortage would help his sales in two ways.

“People will buy my whiskey, of course, but when there’s a shortage of whiskey, they’ll be turning to rum,” he said. “The demand for whiskey is huge right now, and for those of us in the rum business, we think that’s absolutely marvelous. If I were only in the whiskey business, I might be crying in my glass right now. We’re trying to meter our Tennessee whiskey so we don’t have to allocate it.”

Brown-Forman profits

Sales for Brown-Forman’s lineup of other pricier, super-premium brands — including Herradura, Woodford Reserve and Chambord — also rose 8 percent, on the same constant-currency basis, it said.

For the three months ending April 30, the company reported net income of $132 million, or 62 cents per share, up from $113 million, or 52 cents per share, a year ago. Quarterly net sales rose 3 percent to $893 million.

Analysts expected lower earnings of 58 cents per share on higher revenue of almost $930 million for the quarter.

Its shares fell 50 cents to $72.40 in morning trading. Its shares have risen almost 10 percent over the past three months.

For the full year, net income rose 11 percent to $659 million, or $3.06 per share, up from $591 million, or $2.75 per share, a year ago. Net sales for the year rose 4 percent to $3.95 billion.

The Louisville, Kentucky-based company reported broad sales gains for the year across its markets.

Net sales grew by 4 percent in the United States on a constant-currency basis, the company said. In its two largest overseas markets, net sales rose by 8 percent in the United Kingdom and by 2 percent in Australia, it said.

Elsewhere, full-year sales rose by 32 percent in Turkey, 21 percent in Russia, 8 percent in Germany, 6 percent in Canada and 2 percent in Poland on the same constant-currency basis, it said. Sales fell by 16 percent in France and 4 percent in Mexico.

Meanwhile, the performance among Brown-Forman’s other brands was mixed during the year.

Net sales for Finlandia vodka products rose 2 percent when excluding currency swings. Sales for Korbel Champagne increased 3 percent.

But sales for the el Jimador tequila lineup dropped 3 percent for the year on a constant-currency basis. Sales for the Southern Comfort brand also dropped by 3 percent, while Canadian Mist sales slipped 1 percent.

Looking ahead, the company predicts earnings per share to range from $3.25 to $3.45 in the next fiscal year. Analysts expected $3.31 per share. It expects underlying net sales growth of 6 percent to 8 percent in the coming year, with such brands as Woodford Reserve, Herradura and Finlandia contributing to the upswing.

The company warned of continued sluggishness for one key U.S. category — out-on-the-town drinking at bars and restaurants. It also predicted a slight sales slowdown in some emerging markets overseas.


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