Shares of Brown-Forman fell nearly 6 percent Wednesday morning after the distiller reported lower-than-expected sales that were dragged down by tariffs.
Third-quarter net sales, at $904 million, rose 3 percent compared to a year earlier, while the cost of sales rose 14 percent, to $333 million. That lowered gross profit by 3 percent, to $571 million.
Net income, at $227 million, rose 19 percent, but that was primarily because of lower income taxes. Net income increased by $37 million — but taxes fell by $42 million.
“Overall, I’m pleased with the third quarter,” CEO Lawson Whiting said in a conference call with investors.
The company also said, however, that retaliatory tariffs lowered third-quarter sales by about 1 percent when adjusted for currency fluctuations and other measures.
Whiting said that the company had absorbed much of the tariff impact, rather than passing it on to consumers through higher prices, to focus on market share.
In response to tariffs implemented by the U.S. government, some foreign markets, including the European Union, Canada and China have imposed retaliatory tariffs on some politically sensitive U.S. products, including bourbon, made in the home state of U.S. Senate Majority Leader Mitch McConnell.
While President Donald Trump has said that the tariffs are needed to pressure foreign governments, particularly China, to abandon some of its business practices that harm U.S. companies overseas, local professors, trade experts and international whiskey distillers have said the tariffs would harm businesses, their employees, consumers and economic growth.
Brown-Forman said that it estimates that if tariffs remain in place, they will have an annual impact on Brown-Forman of about $125 million per year.
The company also said that gross margins through the first nine months of the year had declined 1.9 percent, with 1.3 percent of that decline being due to tariffs.
The distiller said that it expects sales to grow about 6.5 percent this fiscal year, though it cautioned that intense competition in the developed world and the tariffs had created “additional uncertainty.”
“We remain on track to deliver another strong year of results as cost discipline helped offset some of the large burden we are absorbing due to the retaliatory tariffs on American whiskey.” Whiting said in a news release, “The growth opportunity for our brand portfolio remains significant, and our teams around the world are executing on our long-term growth strategy.”
Shortly after 10 a.m., the company’s shares traded at $48.88, down 5.1 percent. The S&P 500 had declined less than 0.2 percent.
This story may be updated.