Brown Forman Take a Stiff Drink

Brown-Forman (BFA; BFB) headlines its earnings release with “Underlying Operating Income 10% and Increases EPS 8% for the First Nine Months of Fiscal 2010” Lets take a closer look at how they got there.

In Q3 sales are up 10% and cost of sales are only up 2%. Normally that’s huge for any business. But excise taxes grew 17%. No information is provided about the where and the how. We all know governments apply excise taxes. But they do not even seem to consider a marketing program that manages into low excise jurisdictions and minimize high excise jurisdictions.

Think about it. There are tax exiles everywhere.

SGA grew 16%. Investors are not happy with this is the era of cut backs and efficiencies. Net Income for the quarter is down some 13%. Becoming depressed. Cash is down, accounts receivable are up and accounts payable also grew. Short term borrowings are down dramatically but at the expense of other fundamentals.

They are buying back their shares to make the EPS look good. You can only do that for so long.