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Brown Foreman Can Jack Daniels Still Pour? #jackdanielshoney $BFB

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Jack Daniels

Image by Naveen Roy via Flickr

Brown Foreman (NYSE:BFB) announced results for 2011 and immediately started selling the story that 2012 will continue to be a success. How can a Booze company go wrong? These guys have Jack Daniels after all! That’s right Jack Daniels!

Listen to the tone of the executive commentary and you might pick up a nuance or two. They are spending heavily on marketing costs for Jack Daniels Honey. Have not had any yet so I have no personal opinions about the product. I guess that makes me neutral but curious and open-minded. Here are the snips about how the marketing costs are rising faster than the revenues which  as every marketing 101 student will assure you is the proverbial kiss of death.

Fourth Quarter

During the fourth quarter of fiscal 2011, reported net sales grew 8% and underlying net sales gained 3%. The company remained resourceful in its approach to investing behind its brands, effectively and efficiently reaching and responding to our consumers in the challenging environment. Reported advertising expenses increased 11% and underlying advertising expenses grew 7% in the quarter. The advertising expenses outpaced the net sales growth largely as a result of the company providing strong support for its launch of Jack Daniel’s Tennessee Honey through a campaign that combined both traditional and new media. The company intends to continue to support its brands by remaining agile and adaptive to the world’s changing environment and optimizing the mix of its total brand investments.

The above comments are not attributable to Paul Varga, the company’s chief executive officer.

Agile, adaptive and opportunistic are wobble words when a marketing campaign does not go as well as expected. They clearly cannot increase spending faster than revenue growth. Watch carefully in future quarters as they continue to comment. If you are into insider trading watch the advertising spend. If they cut back suddenly you know they hit the wall and the VP Finance read out the riot act. If they continue to spend without improving results they are between a rock and a hard place. Seems to me the consumer will know soon if they like the new Jack Daniels Honey.

Disclosure: George Gutowski writes from a caveat emptor perspective. I have no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours. I normally drink single malt scotch.

  

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