Brown-Forman Corporation (BF-B - Analyst Report) stock declined nearly 1.4% in pre-market trading hours as the company opened fiscal 2017 on a soft note. Earnings for first-quarter fiscal 2017 lagged estimates and fell year over year. Adjusted earnings fell 2.7% to 36 cents a share and missed the Zacks Consensus Estimate by a penny.

Net sales declined 5% year over year to $661 million, after deducting excise taxes. However, on an underlying basis (excluding negative currency impact and other adjustments), sales grew 2%. Moreover, the company’s sales, before accounting for excise taxes, came in at $856 million, down 5% from the prior-year figure of $900 million. The Zacks Consensus Estimate was pegged at $675.7 million.

The fall in net sales was mainly attributed to the persistence of currency headwinds, tough economic conditions in emerging markets and the effects of the sale of Southern Comfort and Tuaca. However, the company’s robust underlying performance gained from its strong portfolio of premium American whiskey brands, along with its Jack Daniel’s trademark.

BROWN FORMAN B Price, Consensus and EPS Surprise

BROWN FORMAN B Price, Consensus and EPS Surprise | BROWN FORMAN B Quote

Quarter in Detail

Brown-Forman’s gross profit declined 8% to $453 million, while gross margin contracted 170 basis points (bps) to 68.5%.

Selling, general and administrative expenses fell 4% from the year-ago quarter figure to $163 million. Further, advertising expenses fell 14% year over year to $82 million.

However, the fall in operating expenses was not enough to offset the fall in gross profit. Hence, operating income dropped 6% to $213 million, with operating margin contracting 30 bps to 32.2%. On an underlying basis, operating income of this Zacks Rank #4 (Sell) company increased 6%.

Balance Sheet & Cash Flow

Brown-Forman ended the quarter with cash and cash equivalents of $459 million, and long-term debt of $1,953 million. The company’s total shareholders’ equity was $1,330 million as of Jul 31, 2016.

During the first quarter of fiscal 2017, the company generated $128 million of cash from operations.

On Aug 18, 2016, the company completed its previously announced 2-for-1 stock split. Consequently, the company is scheduled to pay a split-adjusted dividend of 17 cents per share on its Class A and Class B shares, on Oct 3, to shareholders on record as of Sep 1.

Additionally, Brown-Forman bought back about 4.2 million shares for $201 million in first-quarter fiscal 2017. With this, as of Jul 31, 2016, the company has authorization worth $690 million remaining under its current stock repurchase plan.

Fiscal 2017 Guidance

While the company expects the perils of currency headwinds and unstable emerging market conditions along with an uncertain global economic and geopolitical environment to linger, it remains confident of persistent growth in underlying net sales and operating income in fiscal 2017.

For fiscal 2017, management expects a 4%-6% increase in underlying sales. Further, underlying operating income is anticipated to increase in a range of 7%–9%.

Based on the aforementioned estimates and a 3 cents negative influence from foreign currency headwinds, the company reiterated its fiscal 2017 earnings guidance of $1.71–$1.81 per share, on a split adjusted basis.

Stocks to Consider

Better-ranked stocks in the same industry include Castle Brands Inc. (ROX -Snapshot Report) , with a Zacks Rank #1 (Strong Buy), and Constellation Brands Inc. (STZ - Analyst Report) and Craft Brew Alliance Inc. (BREW - Snapshot Report) , each carrying a Zacks Rank #2 (Buy).