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Distributors Hit Brown-Forman 3Q Earnings

Liquor producer Brown-Forman Corp.'s fiscal third-quarter profit fell 5 percent, suffering a supply-chain hangover as distributors bought less inventory after stocking up in anticipation of price increases.

LOUISVILLE, Ky. (AP) β€” Liquor producer Brown-Forman Corp.'s fiscal third-quarter profit fell 5 percent, suffering a supply-chain hangover as distributors bought less inventory after stocking up in anticipation of price increases.

Company executives said Wednesday that those price increases have started on a limited basis but will spread later this year as the maker of Jack Daniel's whiskey looks to offset rising costs for grain, glass and fuel.

"Looking forward, we will proactively look for opportunities to take price increases in most markets over the coming fiscal year and across most of our brands," Brown-Forman Chief Financial Officer Don Berg said in a conference call with Wall Street analysts.

The company, whose spirits lineup includes Southern Comfort and Finlandia vodka, said a stronger U.S. dollar was another drag on profit in the three months ending Jan. 31. More than half of Brown-Forman's overall sales come from markets outside the U.S.

The company narrowed its full-year earnings forecast. Brown-Forman said it expects earnings of $3.50 to $3.65 per share. It previously expected earnings per share of $3.45 to $3.70. Analysts expect $3.56 per share.

The Louisville, Ky., company reported net income of $133.1 million, or 93 cents per share, in the third quarter. That's down from $140.7 million, or 96 cents per share, a year ago.

Revenue slipped to $959 million from $962.4 million a year ago.

Analysts polled by FactSet expected earnings of $1.01 per share on revenue of $947.6 million.

Brown-Forman said the sale of its Hopland, Calif.-based wine business last April cost it 4 cents per share in third-quarter earnings. Excluding that factor, it said its third-quarter earnings per share would have been up 1 percent.

Its Class B shares were down 1 cent at $80.12 in midday trading Wednesday.

The company spent more on advertising in the third quarter to market such new products as a honey-flavored Jack Daniel's and Southern Comfort Fiery Pepper. The flavored concoctions were introduced last year.

Distributor inventories were a key factor behind the lower third-quarter profit. Distributors stockpiled inventories last year while bracing for anticipated price increases. Berg said the company raised its prices in France, one of its fastest-growing markets for Jack Daniel's, and is boosting prices in the United Kingdom, its second-largest market with more than 1 million cases of Jack Daniel's sold each year.

"While we don't anticipate a lot of pricing improvement for the rest of this fiscal year, we are optimistic about the potential opportunity in fiscal 2013," Berg said as the company looks for broader price increases.

Brown-Forman said its flagship Jack Daniel's whiskey brand led sales gains for the first nine months of its fiscal year. Sales rose 12 percent for the overall Jack Daniel's brand when excluding the impact of currency changes.

Jack Daniel's Tennessee Honey, which debuted last year, has been the key to rising sales for the Jack Daniel's brand in the U.S, said company CEO Paul Varga. The company said it plans to expand the honey-flavored whiskey to several overseas markets in the next year, including the United Kingdom, South Africa and Australia, building on international sales momentum for the Jack Daniel's brand.

On the same constant currency basis, Finlandia vodka sales rose 10 percent in first three quarters of the fiscal year. Sales of the el Jimador tequila brand were flat. The company's pricier spirits rose.

But Southern Comfort-branded sales fell 6 percent, continuing its sluggish performance. The company said that reinvigorating the brand is a top priority. Canadian Mist and Korbel Champagne sales also declined.

The company said a strong U.S. dollar was another challenge in the quarter, despite strong gains in several markets.

It reported double-digit growth in Germany, Mexico, Russia, France, Brazil, Turkey and Canada. Sales declines occurred in China, Greece, Ireland and Spain. Sales in Australia declined due to higher inventory after distributors bought up liquor ahead of anticipated price hikes.