Brown-Forman saw its sales and the stock price of Jack Daniel’s knocked down last week. And executives laid much of the blame on retaliatory tariffs imposed by the European Union.
Trump’s Tariffs Impact
The Distilled Spirits Council (DISCUS) said 2018 was another record year for total United States’ spirits exports, which reached almost $1.7 billion through November.
But the retaliatory tariffs had a measurable impact on American whiskey exports, particularly to the European Union, which is the U.S.’s largest export market at $675 million.
In June, the European Union imposed the retaliatory tariffs after President Donald Trump imposed U.S. tariffs on imported steel and aluminum.
For the first half of the year, January–June, American whiskey exports to the European Union grew to at $363 million, but took a downturn following the imposition of tariffs, declining to $312 million for July–November.
Brown-Forman really started to feel the tariffs’ bite in October, the company’s Chief Finance Officer Jane Cecil Morreau told analysts on a conference call on March 6. She estimated that sales saw a 1% impact as a result of the tariffs’ incremental costs.
“We began to see the cost of tariffs hit not just our cost of sales and gross margins, but also our underlying net sales growth in the quarter and year to date,” Morreau said.
Exports Are 60% of Jack Daniel’s Sales
Brown-Forman has been absorbing the costs and expects to continue to do so through the remainder of the company’s fiscal year, which ends April 30.
“They will have an estimated annualized cost to our company before taking into account any mitigation actions of roughly $125 million,” Morreau added.
Some 30 years ago, Jack Daniel’s Tennessee Whiskey sold 80% of its production domestically with 20% going abroad.
“Today, it’s flipped where over 60% of the volumes are international and only 40% inside the United States,” Brown-Forman CEO Lawson Whiting said, adding, “over the last decade, 80% of its incremental growth has come from markets outside of the U.S., split evenly between developed international and emerging markets.”
Brown-Forman’s shares dropped almost 7% after the conference call to $47.21. By the end of the week, they had recovered to $49.92
Brown-Forman is continuing to work with the Distilled Spirits Council, the industry’s Washington, D.C.-based lobbying arm, to “resolve the tariff situation,” Morreau said.
Over at the Distilled Spirits Council, President/CEO Chris Swonger said, “We strongly encourage the administration and our trading partners in the EU, Canada and Mexico to quickly resolve these harmful tariffs that are undercutting economic growth in this sector and adversely affecting American workers.”
American Whiskey Lags, Irish Whiskey Takes Off
The council on Friday reported that as St. Patrick’s Day neared, sales of Irish whiskeys, especially high-end premium and super premium, were “on fire.”
In 2018, nearly 4.7 million, 9-liter cases of Irish whiskey were sold in the United States, up 10% when compared with 2017. This generated $1 billion in revenue for distillers, up 12% compared to 2017.
“This is an exciting time for whiskey hailing from the Emerald Isle. The category is on fire,” Distilled Spirits Council Senior Public Relations Director Maggie Quinn said in a press release.
“We are experiencing a global whiskey renaissance, and Irish Whiskey, with its triple-distilled soft, sweet and smooth flavor profile is captivating U.S. consumers.”
The are no U.S. tariffs on Irish whiskey.