Brown-Forman Corporation’s Agreement to Sell Its Brands


Jan. 15 2016, Updated 1:05 p.m. ET

Price movement of Brown-Forman

Brown-Forman Corporation (BF.B) has a market cap of $19.6 billion. It rose by 1.3% to close at $92.7 per share as of January 14, 2016. The price movement on a weekly, monthly, and year-to-date (or YTD) basis is -0.66%, -8.2%, and -6.6%, respectively.

Technically, the stock has broken the support and is trading below all moving day averages. Currently, Brown-Forman is trading 6.1% below its 20-day moving average, 9.0% below its 50-day moving average, and 6.8% below its 200-day moving average.

The PowerShares Dynamic Food & Beverage Portfolio (PBJ) invests 4.8% of its holdings in Brown-Forman. The ETF tracks a multifactor, tiered equal-weighted index of US food industry stocks. The YTD price movement of PBJ is -2.3% as of January 13, 2016.

The PowerShares DWA Consumer Staples Momentum Portfolio (PSL) invests 3.8% of its holdings in Brown-Forman. The ETF tracks an index of US consumer cyclical firms selected and weighted by price momentum.

The market caps of Brown-Forman’s competitors are as follows:

  • Diageo-ADR (DEO) — $66.2 billion
  • Constellation Brands (STZ) — $28.6 billion
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Brown-Forman’s agreement with Sazerac

Brown-Forman has entered into an agreement to sell Southern Comfort and Tuaca trademark to Sazerac for $543.5 million. This agreement reflects its evolving portfolio strategy and will close by March 1, 2016. This sale would provide a one-time operating income gain of ~$475 million in fiscal 2016.

Performance of Brown-Forman in fiscal 2Q16

Brown-Forman reported 2Q16 net sales of $1,096.0 million, a fall of 3.4% compared to the net sales of $1,135.0 million in fiscal 2Q15. Its net income fell to $200.0 million in fiscal 2Q16 compared to its net income of $20.8.0 million in fiscal 2Q15. It reported EPS (earnings per share) of $0.97 for fiscal 2Q16 and fiscal 2Q15.

Meanwhile, its cash and cash equivalents fell by 47.3%, and inventories rose by 12.0% in fiscal 2Q16 compared to fiscal 4Q15. Its debt-to-equity ratio rose to 2.1 in fiscal 2Q16 compared to the debt-to-equity ratio of 1.2 in fiscal 4Q15.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of Brown-Forman are 28.5x and 13.5x, respectively, as of January 14, 2016.


The company has made the following projections for fiscal 2016:

  • net sales to rise in the range of 6% to 7%
  • operating income to rise in the range of 8% to 10%
  • diluted EPS in the range of $3.40 to $3.60

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