Sunday, February 12, 2012

Title Brown-Forman Case Study

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The paper has been broken into various sections. The following section of the paper examines the introduction of the company.

Corporate History In the year 1870, George Garvin Brown saw a need to form a quality whiskey that met medicinal standards. In the beginning, with $5,500 of saved and borrowed money he began J.T.S Brown and Bro. Initially, their flagship brand Old Forrester Kentucky Bourbon whiskey was sold in sealed glass bottles to assure its quality. Brown’s friend George Forman joined the company and hence led to the name being changed to Brown-Forman.

The company Brown-Forman was incorporated in 101. In the year 104, Owsley Brown, George Garvin Brown’s son took a very important decision, to come into the business, thus beginning a tradition of family apprenticeship which continues today as well.

The year 156 was another important year in the history of Brown-Forman as they made one of their most famous acquisitions. They purchased Jack Daniel’s distillery in Lynchburg, Tennessee. Since then it has become one of the most popular whiskeys in the world, and led to the company producing a net sales figure of more than $100m for the first time in 160.

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Since 160, Brown-Forman has been littered with new acquisitions. These include companies such as Korbel California champagnes in 165 to Moray Speyside Malt Whiskey in 17. Other major acquisitions during this time include, ‘The Grand Old Drink Of The South’, Southern Comfort in 17 and Lenox Inc. in 18.

Major Milestones With the help of Brown-Forman Beverages Worldwide, Brown-Forman produces and markets many of the most well-known and best-loved wines and spirits in the world. These include Jack Daniel’s, Canadian Mist, Southern Comfort, Early Times, Korbel champagnes, Fetzer wines, and Bolla wines.

Through Lenox, Incorporated, Brown-Forman manufactures and markets the china, crystal, collectibles, and giftware of Lenox; the contemporary tabletop and giftware designs of Dansk; the silver, crystal, china, and giftware of Gorham; the silver and pewter products of Kirk Stieff; and the luggage and leather goods of Hartmann.

The company is headquartered in Louisville, Kentucky. Owsley Brown II is the Chairman and Chief Executive Officer of the company and William M. Street is the President of Brown-Forman Corporation.

The following section of the paper examines the background of the company.

Products and services Brown-Forman Corporation manufactures, bottles, imports, exports and markets alcoholic beverage brands and also manufactures and markets new and used oak barrels. The Company also runs a consumer durables business, which consists of a portfolio of premium consumer brands. Brown-Forman sells fine China dinnerware, crystal stemware and giftware, stainless steel flatware and silver-plated and metal giftware under the Lenox and Gorham brands.

Distribution At present Brown-Forman do not own any major distribution companies. Therefore it relies on its competitors to distribute its products in different markets. For instance, United Distillers and Vintners distribute ‘Jack Daniel’s’ and ‘Southern Comfort’ in the U.K., while Bacardb Wedistributes Brown-Forman’s spirits products in most of continental Europe. However, the current European economy is in a state of flux, with the recent creation of the European Union and the consequent elimination of trading barriers along with the adoption of the Single European Currency, which will be put in motion in the near future. These changes will greatly affect Brown-Forman’s business in Europe and will revolutionise distribution of spirits and wine in Europe, which is presently constructed on a country by country basis, by encouraging cross-border sales. Brown-Forman is not an owner of a European distribution company; therefore if reform is not undertaken in the near future, their retail sales prices will come under pressure due to increased cross-border competition.

Employees The Company employs 6,700 people in the U.S. and abroad. The compensation / benefits of their top leadership are as follows

Names and Position Pay

Owsley Brown, II, 60

Chairman and CEO $ .10M

William Street, 64

Pres, Director $ 1.58M

Phoebe Wood, 50

CFO, Exec. VP $ 805.00K

Stanley Krangel, 5

Pres of Lenox, Incorporated $ 85.00K

Michael Crutcher, 5

Sr. VP, Gen. Counsel and Sec. $ 847.00K

Financial-Sales Brown-Forman Corporation reported earnings per share for the year ended April 0, 00 of $.6, up % over last year. Fiscal 00 revenues and gross profit for the Beverage segment were up 11% and 6%, respectively. Gross profit growth was driven by solid results for Jack Daniels and Southern Comfort, a more profitable distribution arrangement for the companys spirits brands in the United Kingdom, and favorable foreign exchange trends. The growth in spirits was partially offset by significantly lower profits for the companys wine brands.

Profits for the companys wine brands were down sharply from fiscal 00. A global oversupply of grapes led to significant retail price competition, depressing industry profit margins. While consumer demand for Fetzer and Bolla were essentially unchanged from last year, profit margins for both brands dropped significantly.

Sales for Consumer Durables were down 4% during fiscal 00 and gross profit declined 1%. Gross margins improved during the year as a result of firmer pricing, improved product mix and manufacturing efficiencies resulting from the business improvement programs implemented in fiscal 00. Operating income for the segment increased from $17 million to $0 million, although the increase largely reflects an absence of business improvement costs related to the closing of three manufacturing plants in fiscal 00.

Underlying trends in the fine china, tableware and luggage markets have not improved over a depressed period a year ago. Department stores and retail outlet centers, representing two of the primary channels of distribution for the Consumer Durables segment, remain weak. In addition, the direct-to-consumer channel, which includes direct mail, catalogs and the internet, has slowed over the past 1 months.

Stock Price

Last Trade 80.5

Trade Time Sep 15

Change UP 0.85 (1.07%)

Prev Close 7.50

Open 7.45

Bid N/A

Ask N/A

1y Target Est 7.0

Exchange NYSE, The stock price given on the table above is not necessarily indicative of future price performance.

Date Open High Low Close Avg Vol Adj Close

Sep-0 78.4 81.40 78.50 80.5 18,780 80.5

-Aug-0 $ 0.8 Cash Dividend

Aug-0 77.75 7.50 76.50 7.04 ,5 7.04

Jul-0 78.50 8.5 77.41 77.0 16,56 77.5

5-Jun-0 $ 0.8 Cash Dividend

Jun-0 7.10 8.85 77.7 78.6 14,57 78.5

May-0 76.60 7.76 75.10 78.86 145,0 78.1

Apr-0 76.0 80.58 75.80 76.54 58,71 75.8

Mar-0 6.50 76.0 67.0 76.0 80,04 76.18

8-Feb-0 $ 0.8 Cash Dividend

Feb-0 70.00 71.75 68.7 6.55 504,88 68.0

Jan-0 65.50 66.87 60.5 6.14 111,068 61.

Historical Performance The historical prices shown below are from 1st Jan 00 to 16th Sep 00 on a monthly basis.

Type of company Public

P/E Ratio

Trailing P/E (ttm) 1.0

Forward P/E (1 yr) 17.5

ttm = Trailing Twelve Months (as of 1-Jul-0)

Management Team Owsley Brown II, Chairman and Chief Executive Officer

William M. Street, President Brown-Forman Corporation

Phoebe A. Wood, Executive Vice President, Chief Financial Officer

Lois Mateus, Sr. Vice President, Corporate Communications/Services

James S. Welch, Jr, Vice Chairman Brown-Forman Corp., Sr. Vice President, Exec. Dir. of Human Resources

Michael B. Crutcher, Vice Chairman Brown-Forman Corp., Sr. Vice President, General Counsel and Secretary

William A. Blodgett, Jr, Vice President and Deputy General Counsel

Milton B. Gillis, Vice President, Director of Compensation and Employee Benefits

Meredith M. Parente, Vice President and Treasurer

Larry W. Perry, Vice President, Director of Tax

The following section of the paper examines the strengths, weaknesses, opportunities and threats of the Company.

Strengths Brown-Forman’s dark spirits and liqueurs are characterized by strong, well-established brands, commanding a high degree of loyalty among their consumers.

Scotch whisky enjoys a global reputation as a high-quality product, and the company exports a great deal of it to many overseas markets.

The Company keeps spending on new product development (NPD) at a high level and as a result they are able to keep their customers happy.

Their ability to cope in case of changes in general economic conditions, changes in consumer preferences etc.

Weaknesses The consumer base of many dark spirits (especially Scotch whisky and Cognac) is very mature; therefore these products of the company do not appear to be succeeding in attracting the drinkers of tomorrow.

Opportunities British drinkers appear to be receptive to newer, innovative products, especially in the form of sweeter drinks, or spirits mixed with other ingredients. Thereby, the Company can focus on producing similar products.

A growing number of affluent female consumers are entering the market, drinking more and increasingly regularly.

Threats The continued growth of other alcoholic drinks sectors, such as wine and white spirits, may cause the dark spirits market to decline even further.

It seems likely that cross-Channel smuggling will continue further weakening the position of major drinks manufacturers.

The following section concludes the paper with recommendations for improvement and case for investment.

In conclusion, the future for Brown-Forman remains positive and should continue along strong previous year’s growth levels. The factors mentioned above such as cross-Channel smuggling should have no significant adverse affect on short-term future growth rates. While the creation of UDV has undoubtedly heightened the fierce competition in the marketplace, we feel that an established and mature company like Brown-Forman who is continuously re-investing in its workforce and products should maintain its foothold within the industry. As the company estimates per-share earnings for fiscal 004 would rise as much as 18 percent to $4.10 - $4.0. Hence, investing in a company like Brown-Forman can be termed as “worthwhile investment”.

Finally, it must be stated that the company’s distribution channels across Europe need reform, in the long run, when the full ramifications of European Integration will be felt.

1. Brown Forman, Annual Report, 00

., “Brown-Forman Earnings Grow % in Fiscal 00”, May 0, 00.

. The Brown Forman Corporation Web Site at http//

4., September 16, 00

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