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Reuters/Rick Wilking
American tradition.
JD ON THE ROCKS

Trump’s tariff war might ensnare one of the most American of goods

By Preeti Varathan

Brown-Forman, maker of the top-selling Tennessee whiskey brand Jack Daniel’s, is worried about the future.

“The global economy has improved modestly over the last year, including improving conditions in many emerging markets,” says Paul Varga, CEO of Brown-Forman. “However, the competitive landscape in the developed world remains intense, not to mention concerns over potential retaliatory tariffs on American spirits. These factors make it difficult to accurately predict future results.”

This follows Brown-Forman’s modest financial results, which were released today (June 6) for the fiscal year of 2018. While the company’s net sales over the last three months were 6% higher than at the same time last year, they still fell short of investor expectations. Brown-Forman’s net income is also down for the quarter.

Net sales growth for the full year ending in April 2018, though, was up 8% compared to the previous year. And Kentucky-based Brown-Forman, which makes the bulk of its product in the US, posted strong sales in emerging markets and with its super-premium American whiskey brands. Jack Daniel’s, in particular, saw net sales grow 6%, including 4% growth for its Tennessee Whiskey.

Over the last two years, the company has performed well in markets, with its share price up 52% in 2017. But the Trump administration’s ongoing trade disputes and the retirement of a chief executive at the company have sent shares down. Now, the company’s stock is up just 3.6% for the year (paywall).

Brown-Forman has good reason to worry about the effect of tariff wars on its sales. The EU has threatened to slap tariffs on American liquors, like bourbon, if the US presses on with its protectionist trade policy.  “Brown-Forman could be an unfortunate and unintended victim of the policy,” Varga said on an earnings call. “The overwhelming majority of our products are made here in America and over the last few years, I’d just cite, we’ve been investing heavily in our American manufacturing expansion.”

Just yesterday, Mexico imposed tariffs on $3 billion worth of US exports in response to US steel and aluminum tariffs on imports. Among the list of goods Mexico intends to tax is bourbon whiskey. While the bulk of Brown-Forman sales come from the US, Mexico is one of  its top five markets, representing 5% of sales in 2018.