The maker of Jack Daniel’s may be in need of a drink.
Brown-Forman will have to raise prices for American whiskey sold in the European Union following the implementation of a 25 per cent tariff, according to spokesman Phil Lynch. The higher prices, which he said will primarily impact Jack Daniel's, will translate to about a 10 per cent increase at the customer level.
"A 25 per cent tariff does not translate into a 25 per cent increase on the price of a bottle of Jack Daniel's," Mr Lynch said. Due to advanced shipment in Europe, price increases will roll out over the next couple of months and market-by-market, he said.
Brown-Forman, which also makes bourbons including Woodford Reserve, fell to the lowest level in nearly seven months Monday.
“We believe that we are positioned fairly well to withstand the tariffs, but only time will tell how consumers will react in the EU,” Mr Lynch said. Although Europe is a large market for the company, Mr Lynch noted that it sells Jack Daniel’s in more than 170 countries around the world, with the US being its largest market.
“Of course, it would be far better for all American whiskey companies if this trade dispute between the US and the EU ends before the price increases on Jack Daniel’s take effect over the next few months,” he added.
Goldman Forecast
Goldman Sachs Group analyst Judy Hong trimmed her projections for the company's earnings per share by 4 per cent to 5 per cent for both the current and next fiscal year due to the tariffs. Her revised estimates take into account the levies imposed by the EU as well as Mexico, she said Monday in a note to clients. Hong said the company is likely to cut its own profit and sales-growth guidance when it reports in August.
The EU last week triggered the first phase of retaliation against the U.S. over its metal-import tariffs, making good on more than three months of threats to hit iconic American goods with tit-for-tat levies. The European Commission in Brussels gave final approval for a 25 per cent duty on €2.8 billion Of EU imports of a range of US products including Harley-Davidson motorcycles, Levi Strauss and Co. jeans and whiskey.
While President Donald Trump has repeatedly claimed that the US can easily win trade wars, victims are starting to pile up at home and abroad. Daimler AG, the maker of Mercedes-Benz luxury vehicles, warned last week that escalating tension between the US and China will impair earnings from its Alabama sport utility vehicle plant and lower profit this year. Harley-Davidson said it plans to shift some production of its motorcycles out of the US in response to retaliatory EU levies.
On-Ground Inventory
Kentucky-based Brown-Forman said earlier this month it was too soon to accurately forecast future sales growth with so much uncertainty surrounding the tariffs, but said at the time it was trying to mute the impact by building up inventories in markets outside of the US. Brown-Forman has moved more product to France, Spain, Germany and Poland, where it has its own distribution network, it said earlier this month.
“In markets where we don’t own our own distribution, it’s the local distributor whom we sell our own product to - they will make the decision on whether or not to increase the price on the product that they purchased from Brown-Forman and then sell into the retail level,” MR Lynch said Monday.
Shares fell 3 per cent in New York to $48.30 on Monday, the lowest level since November 30th. – Bloomberg
