|
|
Get Four
|  | SEPTEMBER 27, 2004
 FOCUS STOCK By Anishka Clarke Brown-Forman's Well-Stocked Bar The maker of Jack Daniel's, Southern Comfort, Finlandia, Fetzer, Korbel, and more is thriving on strong demographic trends We at Standard & Poor's Equity Research believe Brown-Forman (BF.B; recent price, $46) -- the company behind Jack Daniel's and other top names behind the bar -- will successfully ride the current strength in the domestic spirits market. We see it capitalizing on what we think is its strong lineup of brands and a significant boost to its marketing campaign. Also, we think Brown-Forman will benefit from demographic and cultural shifts, and its presence in international markets. With its increasing brand investment and, in our view, innovative new product introductions, we think Brown-Forman will continue to outperform the spirits industry over the next 12 to 18 months. The stock carries Standard & Poor's highest investment recommendation of 5 STARS, or buy. The origins of Brown-Forman, the world's fourth-largest producer of distilled spirits, date back to 1870. The company now operates in two segments: wines and spirits, which contributed 96% to operating profits in fiscal 2004 (ended April), and consumer durables, which accounted for the remaining 4%. BIG-NAME LINEUP. While other alcoholic-beverage companies have recently reduced their dependence on the highly mature "brown" spirits market, Brown-Forman has remained focused on whiskey. Its Jack Daniel's brand continues to be its largest sales and profit producer, posting volume growth of 6% in fiscal 2004. The U.S. market accounted for 55% of the brand's sales. Brown-Forman's portfolio includes a number of other well-known whiskies, bourbons, vodkas, tequilas, rums, and liqueurs, including Canadian Mist, Finlandia, Southern Comfort, and Early Times. Statistics based on case sales rank Jack Daniel's as the largest-selling Tennessee whiskey in the U.S., Canadian Mist as the second-largest-selling Canadian whisky in the U.S., and Southern Comfort as the largest-selling domestic proprietary liqueur in the U.S. Brown-Forman's other major alcoholic-beverage lines include wine brands such as Fetzer and Bolla, and Korbel champagnes. Its consumer durables segment consists of china, crystal and giftware marketed under the Lenox and Gorham trademarks. The segment also includes Dansk, a producer of tableware and giftware, Kirk Steiff, and Hartmann Luggage. Since January, 2004, this segment has restructured its operations in an effort to restore profitability and competitiveness. TAPPING WOMEN. We see Brown-Forman benefiting from demographic and cultural shifts. In the past several years, growth in the spirits and wine categories has outpaced that of beer in the domestic market. We attribute this in part to the successful inroads made by spirits and wines into the 21- to 27-year-old demographic -- first-time drinkers. With more targeted marketing, especially in the on-premise (bars, lounges, etc.) trade, cocktails have become a popular drinking choice for first-time drinkers. Shifts in cultural drinking habits driven by the surge in flavored alcoholic beverages a couple of years ago and innovative line extensions have also supported the rise in popularity, in our opinion. Finally, with beer companies focused on males, we think the spirits and wine companies have successfully tapped into the female market with innovative flavors and packaging. With further growth expected in this 21-to-27 demographic, we believe Brown-Forman will continue to benefit. Another attractive group for Brown-Forman, in our view, is the large and growing over-50 age group. This demographic includes more sophisticated and affluent drinkers who tend to choose wines and hard liquor over beer. Couple this growing customer base (estimated to increase approximately 15% by 2010) with expectations for further economic recovery, and we believe Brown-Forman's aggressive marketing campaigns in both the on- and off-premise segments will support above-industry growth for both its premium spirits and wine categories.
BW MALL
SPONSORED LINKS
Buy a link now! | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
