Factors Likely to Influence Brown-Forman's (BF.B) Q4 Earnings

Brown-Forman Corporation BF.B is set to release fourth-quarter fiscal 2019 results on Jun 5, before market open.

Notably, this leading producer and distributor of premium alcoholic beverages delivered positive earnings surprise in the last seven quarters. The company’s average earnings beat in the trailing four quarters is 4.6%.

Let’s see how things are shaping up prior to the earnings announcement.

How are Estimates Faring

The Zacks Consensus Estimate for fiscal fourth-quarter earnings is pegged at 29 cents, which reflects a 26.1% rise from the year-ago quarter’s figure. Notably, the consensus mark has been stable in the past 30 days. The consensus mark for fiscal fourth-quarter sales is pegged at $761.8 million, indicating 3.9% growth from the prior-year quarter’s number.

Brown-Forman Corporation Price and EPS Surprise

Brown-Forman Corporation price-eps-surprise | Brown-Forman Corporation Quote

Factors at Play

Brown-Forman benefits from robust brand portfolio, positive earnings surprise history, expansion plans and shareholder-friendly initiatives. The company is experiencing solid improvement in underlying sales owing to broad-based growth across geographies and balanced contribution from portfolio of brands. Its underlying sales improved for ten straight quarters in the last reported quarter.

Moreover, the company is confident of capitalizing on  strategy for American Whiskey. Brown-Forman is also focused on investing in the diversification of its brands portfolio to boost growth. Impressively, the Jack Daniel's Tennessee Whiskey is the key contributor to growth in the United States. Further, the company is making investments to organically accelerate growth of two fast growing spirits categories — Bourbon and Tequila.

Notably, year-to-date underlying sales growth across the company’s portfolio was led by Jack Daniel’s family of brands, which generated 4% growth. All the aforementioned factors are likely to drive the top and the bottom line in fiscal fourth quarter.

However, intense competition in the developed economies along with concerns related to the enacted retaliatory tariffs on American whiskey is likely to hurt fourth-quarter results. Brown-Forman witnesses the impacts of cost of tariff on underlying net sales along with prior impacts on cost of sales and gross margin. Notably, underlying net sales in fiscal third quarter and year to date were negatively impacted by nearly one percentage point from lower net prices to distributors in certain markets that offset additional tariff-related costs.

Moreover, gross margin continued to be affected by tariff-related costs. Apparently, gross margin contracted 190 basis points (bps) in the first nine months of fiscal 2019 due to impact of resolving the majority of tariff costs. Gross margin was also hurt by higher input costs. Moreover, the company expects tariff and cost of sales inflation for wood and agave to hurt gross margin in fiscal fourth quarter. Consequently, it estimates gross margin for fiscal 2019 to contract 200 bps. Additionally, unfavorable currency rates are a headwind.

A Look at the Zacks Model

Our proven model does not show that Brown-Forman is likely to beat earnings estimates in fourth-quarter fiscal 2019. This is because a stock needs to have — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Brown-Forman has a Zacks Rank #4 (Sell) and Earnings ESP of 0.00%, which makes surprise prediction difficult.

Stocks Poised to Beat Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Abercrombie & Fitch Co ANF has an Earnings ESP of +0.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands, Inc STZ has an Earnings ESP of +4.42% and a Zacks Rank #3.

Colgate-Palmolive Company CL has an Earnings ESP of +0.86% and a Zacks Rank #3.

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