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Southern Comfort sale averts disaster as Brown-Forman's sales drop 2%

Published:  09 June, 2016

The sale of Southern Comfort and Tuaca has bolstered a 2% drop in net sales for Jack Daniels owner Brown-Forman.

The sale of Southern Comfort and Tuaca has bolstered a 2% drop in net sales for Jack Daniels owner Brown-Forman.

Reported net sales from the company's full fiscal year report decreased 2% to $4,011 million, while the company's reported net sales declined 1% to $933 million in Q4.

Reported operating income grew 212% in Q4 to $726 million thanks largely to the sale of Southern Comfort and Tuaca on March 1.

Elsewhere, lagging sales were due in part to waning impact in emerging markets which have historically been a significant contributor to growth.

The 2016 fiscal year saw a "marked slowdown", the company said, due to weakening economic conditions and currency devaluations.

Developed markets outside of the United States experienced acceleration in their underlying net sales trends compared to fiscal 2015 however, growing 6% (-3% reported).

Western Europe's underlying net sales jumped to high-single digits, as the United Kingdom, Germany and France delivered strong results.

In the UK - Brown-Forman's second largest market - growth in reported net sales were up 10%, while growth in underlying net sales was 9%.

New Zealand and Canada continued to grow at a healthy rate; Australia, Japan and Spain each returned to sales growth in the year, but Italy's sales declined.

The company said the year was a "tale of two halves", with emerging markets growing underlying net sales by 8% in the first half and only 1% in the second half.

The emerging markets displayed some signs of stabilisation, with the fourth quarter's rate of growth in-line with the third quarter's growth.

Turkey, Brazil, South Africa and Ukraine each delivered double-digit underlying net sales growth.

Russia's underlying net sales declined 17% and southeast Asia dropped double-digits, led by declines in Indonesia due to recent changes to industry regulation of import duties.

Mexico grew underlying net sales 6%, while Poland grew only 1% due to a challenging competitive environment in vodka.

Despite the challenges, Paul Varga, Brown-Forman CEO, hailed the year as a success.

"Fiscal 2016 was another successful year at Brown-Forman," he said. "We delivered solid underlying growth in sales and operating income, led by the Jack Daniel's family of brands. We also made important changes to our portfolio of brands that we believe position us well for the long-term.

"Against a favourable backdrop of global interest in American whiskey, we invested capital to expand our capacity and we returned approximately $1.4 billion to our shareholders during the year. We believe that our strong free cash flow and capital efficiency positions us to deliver top-tier returns for our shareholders."