Supply Chain

Brown-Forman Ships More Overseas Amid Trade War Fears

The maker of Jack Daniel's also reported lower income and warned of gross-margin declines from higher wood, agave, and freight costs.
William SprouseJune 7, 2018
Brown-Forman Ships More Overseas Amid Trade War Fears

Brown-Forman, the maker of Jack Daniel’s Tennessee whiskey, said it has been working in recent months to blunt the impact of potential trade restrictions by shipping more liquor overseas.

“It’s a tough, tricky situation that we’ve been watching now for months. It seems like every day we wake up and it takes a little bit of a twist and turn,” Brown-Forman Chief Executive Paul Varga said in a conference call on fourth-quarter results.

Varga said the company could manage trade risks with more flexibility by moving shipments to markets where it has its own distribution, instead of relying on third-party distributors.

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Brown-Forman said the uncertainty around the issue made it difficult to give a precise full-year outlook.

Commerce Secretary Wilbur Ross last month announced tariffs of 25% on imported steel and 10% on imported aluminum, prompting pledges of retaliation from Mexico, Canada, and the European Union. Mexico said it was imposing tariffs specifically on Tennessee whiskey and bourbon.

About half of Brown-Forman’s revenue comes from the United States, while 5% comes from Mexico and 1% from Canada. The United Kingdom, Germany, France, and Poland account for about 18% of sales altogether.

The company also warned of gross margin declines due to higher wood, agave, and freight costs.

Brown-Forman also offered early retirement to about 150 salaried employees, more than 10% of the workforce. The company said the buyouts were planned before countries announced they were retaliating.

The U.S. Chamber of Commerce has said Trump’s stance on trade could put 2.6 million American jobs at risk.

Brown-Forman laid off 250 workers in 2009, the last time it reduced its workforce. The company is known for high salaries and generous benefits.

It reported net income of $110 million for the quarter ended April 30, down from $144 million a year ago.

Net sales for the quarter were $733 million, up 5.6%.

Shares of the company were off 1.5% on Thursday morning.

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