Brown-Forman sees 3% drop in Q2 but holds positive outlook for North American premium whiskey portfolio

08-Dec-2016 - Last updated on 09-Dec-2016 at 10:09 GMT

Brown-Forman CEO Paul Varga says he hopes the company's newer brands will follow in the same successful footsteps as Woodford Reserve.

Brown-Forman may have suffered a 3% loss in net sales, declining to $830m in Q2, but the CEO Paul Varga said the decline was to be expected after the company sold its Southern Comfort and Tuaca brands to Sazerac for $543.5m earlier this year.

Southern Comfort and Tuaca were acquired by Brown Forman in 1979 and 2002, respectively. The divesture was part of Brown Forman’s strategy to focus on core brands, while Southern Comfort sales volume fell 7% in 2015.

While the Jack Daniel’s maker continues to shake off the loss of two of its long-standing alcohol brands, the company was met with success across other areas of its product portfolio, chiefly whiskey.

Barrel business grows as consumers go premium

Brown-Forman reported a strong underlying net sales growth of 19% in Q2 of its super- and ultra-premium whiskey brands including Woodford Reserve, which posted 12% growth over last quarter.

“In my view, Woodford epitomizes the quality, authenticity, flavor, hospitality and down-to-earth personality that today’s consumers seeks from their high-end bourbon experience,” Varga said.

In addition, the Jack Daniel’s brand family experienced a 4% growth in the US driven by 3% depletion growth for Jack Daniel’s Tennessee Whiskey and continued growth from Gentleman Jack and Tennessee Honey, Varga said during an earnings call.

Varga also said he attributes this sturdy growth of the company’s “barrel business” to being vertically integrated as it benefits Brown-Forman with quality control, cost control, and supply stability.

“We aspire for brands like Old Forester, Herradura, GlenDronach, Cooper’s Craft, and our forthcoming Slane Irish whiskey to follow a similar path as the one Woodford has traveled over these last 20 years and we are investing behind this aspiration accordingly,” he added.

Tequila takeaways

Another area of positive focus is Brown-Forman’s tequila portfolio, which includes the Herradura and El Jimador brands.

“We believe that the brand [Herradura] is a growing gem in our portfolio and one that will become an increasingly important contributor to our business, given its high margins and significant opportunity to grow share,” Varga said.

El Jimador had a strong second quarter saw a 9% jump in sales in Q2 largely due to the repositioning of the brand in Mexico as a premium spirit.

Conversely, Brown-Forman’s vodka portfolio suffered additional losses with Finlandia declining 4% in net sales due to continued pricing pressure in Russia of premium vodka, Varga said.