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Drinks

Brown-Forman Upped Jack Daniel's Shipments As Trade War Loomed

By Steve Wynne-Jones
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Brown-Forman Upped Jack Daniel's Shipments As Trade War Loomed

Jack Daniel's maker Brown-Forman Corp has warned of trouble ahead from tariffs being slapped on U.S. bourbon and said it had been working in recent months to mitigate the potential impact by shipping more liquor overseas.

The spirit and wine maker was thrust into the spotlight last week when Mexico placed a 25 percent tariff on bourbon imports in response to President Trump's imposition of import duties on metals.

The European Union has said it will also respond with levies.

In response, the company, while promising it was on top of the situation, said the issue made it hard for it to give a precise full-year outlook.

Tricky Situation

"It's a tough, tricky situation that we've been watching now for months. It seems like every day we wake up and it takes a little bit of a twist and turn," Brown-Forman Chief Executive Paul Varga told a conference call.

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Brown-Forman earns only half of its revenue from the United States, with Europe accounting for a quarter and Mexico and Canada contributing around 5 percent and 1 percent of net sales, respectively.

Jane Morreau, the company's chief financial officer noted that the company has "been watching the developments very closely as the situation remains fluid and there is great uncertainty around what retaliatory measures, if any could be implemented on what starting when at what rate or for how long.

"So while it's premature to comment on the potential impact on our business, we are on top of the situation and have undertaken measures over the last few months to mitigate risk such as increasing our inventory levels in non-U.S. markets where we own our own distribution."

Elsewhere, Varga said the company has gained more flexibility in managing trade risks by moving shipments to markets where it has its own distribution, rather than depending on third-party distributors.

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"The last 12 months or so were indeed memorable," he noted, "as they encompass last spring’s widespread acquisition rumors about Brown-Forman, U.S. tax reform announced in December and our resulting actions announced in January, our succession plan announcement last week and most recently the threat of retaliatory trade tariffs against American whiskey. It seems that there is never a dull moment."

Earlier today, Brown-Forman reported that net sales were up 8% to $3.25 billion (+6% on an underlying basis) compared to the previous year. Operating income rose by 5%.

News by Reuters, edited by ESM. Additional reporting by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.

 

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