Tariff Analysis: The Brown Forman Example

Whiskey maker Brown Forman filed its latest quarterly earnings last week, and for analysts trying to understand how tariffs are affecting corporate performance, this is a great example.

First, the overall picture for Brown Forman ($BF) wasn’t great. Sales, gross profit, operating income, and net income were all down from the year-earlier period, resulting in a 12.8 percent decline in EPS. That alone is enough to make investors pour a stiff shot of Brown Forman’s flagship product, Jack Daniels.

Tucked in the guts of Brown Forman’s earnings release, however, was even more grim news. The company also provided a breakdown of growth in net sales by geographic operating segment — and reported a 62 percent decline in sales from Canada. See Figure 1, below.

Why did that drop happen? Brown Forman never expressly mentioned tariffs as the cause, but it did say this about sales growth in its “Developed International” geographic segment: 

Net sales in the Developed International markets declined 8% (-9% organic) due to soft consumer demand impacted by macroeconomic and geopolitical uncertainty. The decline was led by lower volumes of Jack Daniel’s Tennessee Whiskey in Germany and the United Kingdom, along with the absence of American-made alcohol from retail shelves in most of the Canadian provinces. 

Translation: Europeans are unhappy about U.S. tariffs on European goods, so they’re boycotting the famous American brand Jack Daniels. Canadians are even more unhappy about tariffs, and are yanking Brown Forman liquor from their shelves entirely (which they can do because most liquor sales in Canada are run through government-managed liquor stores). 

We then used our “See Tag History” feature to pull up net sales growth in Canada for the prior eight quarters. See Figure 2, below. 

This news caught our attention because, as we’ve said before, Calcbench has tools to help analysts model a company’s exposure to overseas markets. That, in turn, can help you understand how much of a company’s business might be at risk either from tariffs directly (if those overseas markets impose their own retaliatory tariffs) or from consumers in those markets who sour on the U.S. company even without retaliatory tariffs (as seen in this Brown Forman example). 

Calcbench subscribers can do so by visiting our Segments, Rollforwards, and Breakouts page, pulling up the geographic segments filter for the company (or companies) you want to research, and then type “Canada” into the search field. If the company reports a Canada segment — and be warned, many companies don’t — you’ll then see that revenue, and can get a sense of how important Canada is to the company you’re researching.

We previously did this exercise using Japan instead of Canada, to identify S&P 500 firms with significant exposure to the Japan market. You can do the same for Canada, Mexico, China, Europe, or any geographic segment. If the company reports that segment, we’ll have the data. 

Anyway, Brown Forman is a sobering reminder (you’re darned right that pun was intentional) that tariffs can crimp a company’s sales even without tariffs directly applied. Tariffs are now a geopolitical issue, so you need to understand a company’s whole international sales picture. 

As always, Calcbench can deliver that data for you.