How Brown-Forman Corporation (BF.A) Must Stand Up to Its Competition

On Wednesday, Brown-Forman Corporation (NYSE:BF.A) will release its latest quarterly results. As the global spirits industry get ever more competitive, the company needs to take steps to protect its important position around the world.

Brown-Forman is the company behind popular brands that include Jack Daniels, Southern Comfort, and Finlandia. As the rising consumer class around the world starts to earn more disposable income, capitalizing on new markets has become extremely important even for well-established producers in the spirits industry. Let's take an early look at what's been happening with Brown-Forman over the past quarter and what we're likely to see in its quarterly report.

Stats on Brown-Forman

Analyst EPS Estimate $0.46
Change From Year-Ago EPS (6.1%)
Revenue Estimate $861.73 million
Change From Year-Ago Revenue 7.5%
Earnings Beats in Past 4 Quarters 3

Source: Yahoo! Finance.

Will Brown-Forman's earnings keep investors happy this quarter? Brown-Forman Corporation (NYSE:BF.A)Analysts have had mixed views on Brown-Forman Corporation (NYSE:BF.A) in recent months, having cut their earnings estimates for the April quarter by $0.04 per share, but boosting their views for the 2014 fiscal year by $0.03 per share. The stock has taken the longer-term view, rising about 5% since late February.

The spirits business is one that many investors look to for stable, reliable growth even in the toughest of economic environments. With slowing growth in many areas of the world, the appeal of Brown-Forman as a defensive play on long-term growth is greater than ever.

Lately, though, new trends in the spirits industry have forced Brown-Forman Corporation (NYSE:BF.A) and its rivals to retrench in order to capture lucrative untapped markets. For instance, BEAM Inc (NYSE:BEAM)'s move to buy into the Skinnygirl low-calorie cocktail brand in 2011 was arguably the opening salvo in efforts to bring calorie-consciousness to spirits, and Diageo plc (ADR) (NYSE:DEO) has pushed flavored spirits with its Sorbet line of low-calorie vodkas.

But one troubling long-term trend is the move away from spirits toward wine and beer. Wine now makes up almost 40% of all liquor-store sales in the U.S., with hard-liquor falling from 35% to less than 13% of overall share. In addition, with major merger-and-acquisition activity in the beer industry, Diageo plc (ADR) (NYSE:DEO) has had to take steps to defend its Guinness brand against dedicated brewing rivals. With Brown-Forman having sold most of its wine business a couple years ago, it has clearly thrown its lot in with the concept that foreign markets won't follow the U.S. trend.

In Brown-Forman Corporation (NYSE:BF.A)'s report, watch for signs of whether the company expects to seek growth through acquisition, and if so, which direction that growth takes. Despite the growing appeal of beer and wine, a big strategic expansion would be an about-face from the company's past moves, and so investors should instead expect a refocusing of efforts to maximize the potential of the spirits business going forward.

The article How Brown-Forman Must Stand Up to Its Competition originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Beam and Diageo.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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