Tariffs a Key Risk for Jack Daniel's Maker Brown-Forman

Sonia Vora: Wide-moat Brown-Forman's fiscal 2018 results largely came in line with our expectations, with net sales up 8% and gross margin expanding 30 basis points to nearly 68%, resulting in diluted earnings per share of $1.48, which is comparable to our $1.50 estimate. We're maintaining our longer-term outlook, which calls for above 5% net sales growth and mid-30s average operating margin over our forecast. Despite a mid-single digit pullback in shares following the release, we'd suggest investors wait for a more attractive entry point.

Price and mix contributed around a third of the firm's underlying sales growth, consistent with our outlook for around 2% annual improvement in pricing over our forecast, as we expect a greater contribution from the firm's super-premium American whiskey portfolio (which grew underlying sales by 15% this year) will yield positive mix effects. The Jack Daniel's brand family, which accounted for roughly 60% of annual depletions, also remains healthy, with underlying net sales up 6%.