ZACKS CONSENSUS ESTIMATES

December 31, 2014

Brown-Forman Corporation-B

(BF.B-NYSE)

Current Recommendation Prior Recommendation Date of Last Change

Current Price (12/30/14) Target Price

NEUTRAL

Outperform 12/14/2011

$88.75 $93.00

SUMMARY DATA

52-Week High 52-Week Low One-Year Return (%) Beta Average Daily Volume (sh)

Shares Outstanding (mil) Market Capitalization ($mil) Short Interest Ratio (days) Institutional Ownership (%) Insider Ownership (%)

$97.05 $74.08

18.86 0.67

625,726

211 $18,764

7.17 30 10

Annual Cash Dividend Dividend Yield (%)

5-Yr. Historical Growth Rates Sales (%) Earnings Per Share (%) Dividend (%)

$1.26 1.42

5.2 9.3 9.2

P/E using TTM EPS

P/E using 2015 Estimate P/E using 2016 Estimate

Zacks Rank *: Short Term 1 3 months outlook

* Definition / Disclosure on last page

28.5 27.2 24.5

4 - Sell

? 2014 Zacks Investment Research, All Rights reserved.

SUMMARY

Brown-Forman managed to post a year-over-year increase in its second-quarter fiscal 2015 top- and bottom lines despite an adverse impact from foreign currency translation. We believe that the company s consistent focus on developing its premium Jack Daniel s brand through innovation and packaging changes has paid off, making it a thriving company. Moreover, we expect its pricing strategy, product innovation and penetration in emerging markets to drive growth. However, the company came up with cautious earnings guidance for fiscal 2015 as it expects the foreign exchange headwinds to continue. Moreover, stiff competition and risks arising from overseas market operations may adversely impact its performance. The company also remains prone to probable increase in excise taxes that may negatively impact its bottom-line. Thus, our long-term Neutral recommendation remains intact.

Risk Level *

Type of Stock Industry Zacks Industry Rank *

Low,

Large-Growth Beverages-Alcoh

245 out of 267

ZACKS CONSENSUS ESTIMATES

Revenue Estimates

(In millions of $)

Q1

Q2

Q3

Q4

Year

(Jul)

(Oct)

(Jan)

(Apr)

(Apr)

2013

777 A

747 A

660 A

3,784 A

2014

686 A

833 A

782 A

689 A

3,946 A

2015

705 A

877 A

818 E

726 E

3,126 E

2016

757 E

918 E

3,327 E

(Note: All revenue figures are including excise taxes)

Earnings Per Share Estimates

(EPS is operating earnings before non-recurring items, but including employee

stock options expenses)

Q1

Q2

Q3

Q4

Year

2013 2014 2015 2016

(Jul)

$0.66 A $0.70 A $0.79 E

(Oct)

$0.80 A $0.96 A $0.97 A $1.09 E

(Jan)

$0.73 A $0.82 A $0.87 E

(Apr)

$0.45 A $0.62 A $0.72 E

(Apr)

$2.68 A $3.06 A $3.26 E $3.62 E

Projected EPS Growth - Next 5 Years %

N/A

(Qtly. fig. may not add up to annual due to acquisitions, stock split and rounding off.)



10 S. Riverside Plaza, Chicago IL 60606

OVERVIEW

Brown-Forman Corp. is a major producer and distributor of premium alcoholic beverages in the world. The company has a strong portfolio of more than 25 premium brands, including Jack Daniel s the flagship spirits brand followed by Southern Comfort liqueur, Canadian Mist whiskey, Finlandia vodka as well as Fetzer and Korbel wine brands. Brown-Forman markets its products in more than 135 countries including the U.S., Canada, the U.K., Australia, Turkey, Mexico, Poland, Germany, France, Spain, Italy, South Africa, China, Japan, the Czech Republic and the Russian Federation. The Louisville, KY-based company also has 16 production and warehousing facilities spread across the U.S., Europe and Mexico.

REASONS TO BUY

Boasts a Portfolio of Strong Brands: Brown-Forman is a major producer and distributor of premium alcoholic beverages in the world, and commands a strong portfolio of globally recognized brands. We expect the company s continued focus on pricing, product innovation and expanding operations in emerging markets to boost its operational performance and further strengthen its market position.

Realigning Business Operations to have a Better Focus: In order to increase its organizational focus and make optimum use of resources in the Asia-Pacific (APAC) region, Brown-Forman has split the operations of this region into two parts. From Nov 1, 2013, the company s Asia-Pacific operations have been restructured as Australia, New Zealand, and Southeast Asia region (ANZSEA) and the North Asia region (NA). Apart from this, the company is planning to open its European headquarters in Amsterdam, the Netherlands. The company s activities across the European region have increased significantly in the past few years, with the region accounting for approximately 32% of Brown-Forman s fiscal-2014 net sales. In order to sustain healthy growth in the region, BrownForman has thus resolved to move its European leadership team and key functional leaders to Amsterdam. Moreover, the Dutch capital is preferred for its central location and easy access to the rest of Europe and other international markets. These strategies are expected to drive the company s long-term growth.

Expanding Premium Brands Reach to Drive Growth: Brown-Forman plans to expand Jack Daniel's market share in the developed markets, such as France and the U.S., and emerging markets such as Russia, Poland, and Mexico, where the whiskey category is in the early stages of development. In the near future, the company seeks to expand the sphere of other brands, such as Gentleman Jack, Jack Daniel's Single Barrel and Jack Daniel's ready-to-drink within Jack Daniel s.

Enhances Shareholder Wealth: The company has a consistent record of returning cash to shareholders through share repurchase and dividend payouts. During the first half of fiscal 2015, the company returned $329 million to shareholders through dividend payments of $124 million and share repurchase worth $205 million. The company has paid quarterly cash dividends consistently for the past 69 years and has been increasing it for the last 31 years. Brown-Forman s strategy of paying regular dividends and increasing the same reflects its commitment to enhance long-term shareholder value. Through this, Brown-Forman demonstrates its ability to boost the long-term prospects for the company s earnings as well as cash flows.

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REASONS TO SELL

Foreign Currency Translations Impact Q2 Earnings and Outlook Leading to Downward Estimate Revision Trend: Due to its exposure in the international markets, Brown-Forman remains prone to currency fluctuations. Though the company posted a year-over-year increase in top and bottom lines in second-quarter fiscal 2015, its earnings came in below expectations on account of adverse foreign currency translations. Further, the company has lowered its fiscal 2015 earnings per share guidance as it expects foreign exchange headwinds to continue through the rest of the year. This, in turn, pulled down the Zacks Consensus Estimate for the upcoming quarter, fiscal 2015 and 2016 over the last 30 days.

Regulatory Uncertainties: Distilled spirits are subject to excise tax in various countries. Rising fiscal pressure in the U.S., European and many emerging markets may lead to increasing risk of a potential excise tax on spirits by governments of respective countries. The effect of any excise tax increase in the future may have an adverse effect on Brown-Forman s financial performance.

Macroeconomic Headwinds: The prevalent sluggishness in the global economy, along with macroeconomic headwinds such as rise in fuel and energy costs, unemployment level and high household debts may negatively affect the discretionary spending of consumers and consequently dampen the company s growth and profitability.

Competitive Pressure: The company faces intense competition from other well-established players in the industry, including Beam Inc., Constellation Brands Inc. and Diageo plc on grounds of taste, product quality, brand image, price and consumer preferences. Consequently, this may dent BrownForman s top- and bottom-line performances.

RECENT NEWS

Brown-Forman Q2 Earnings Miss, Issues Mixed Guidance Dec 3, 2014

Brown-Forman Corporation came up with its second-quarter fiscal 2015 results, wherein the company s earnings of $0.97 per share climbed nearly 1% year over year, but fell short of the Zacks Consensus Estimate of $1.05. Brown-Forman s results in the quarter were adversely affected by the foreign exchange.

Net sales for the second quarter increased 5.2% year over year to $1,135 million, backed by sales improvement witnessed in various brands, particularly its Jack Daniel s trademark. Moreover, after deducting excise taxes, sales came in at $877 million, up 5.3% from the prior-year figure of $833 million. The Zacks Consensus Estimate for the quarter was $896 million.

Quarter in Detail

In the reported quarter, Brown-Forman s gross profit increased 6% to $609 million from $576 million in the year-ago comparable quarter, primarily due to favorable price mix. Consequently, gross margin improved 30 basis points (bps) to 53.7%.

Selling, general and administrative expenses (SG&A) increased 10% from the year-ago quarter to $178 million with advertising expenses growing 11% year over year to $123 million, mainly due to the bad timing of the expenses.

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Operating income slipped 3% year over year to $303 million, with the operating margin contracting 220 bps to 26.7%, as the benefit from improved gross margin was more than offset by higher expenses and the adverse foreign exchange impact.

Balance Sheet & Cash Flow

On Nov 20, 2014, the company announced an 8.6% hike in its quarterly dividend to $0.315 a share, payable on Dec 30 to shareholders of record as on Dec 4, 2014.

During the first half of fiscal 2015, Brown-Forman generated $70 million of cash from operations. Also, over the same period, the company repurchased 2.2 million shares for $203 million, bringing its previous authorization worth $250 million to an end. Further, on Oct 15, management approved a new share repurchase program, which permits Brown-Forman to buy back shares up to $250 million through Oct 14, 2015.

Brown-Forman ended the second quarter with cash and cash equivalents of $235 million and long-term debt of $998 million. The company s total shareholders equity stood at $2,075 million, as of Oct 31, 2014.

Mixed FY15 Guidance

On the assumption that the international market conditions will not worsen going forward, the company reaffirmed its fiscal guidance range of 6% to 8% growth in underlying sales. Moreover, operating income is still expected to increase in the band of 9% to 11% on an underlying basis.

However, the company anticipates foreign exchange headwinds to continue and hence, adversely affect results. Consequently, the company downgraded its earnings guidance to a band of $3.15 $3.35 per share for fiscal 2015, compared to $3.25 $3.45 per share projected earlier.

Overall, management remains satisfied with the company s first half fiscal 2015 results even amid tough trading conditions. Looking ahead, the company remains optimistic on the back of the holiday season.

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VALUATION

Brown-Forman s current trailing 12-month earnings multiple is 28.5x compared with the 33.5x industry average and 19.2x for the S&P 500. Over the last five years, Brown-Forman s shares have traded in a range of 16.5x to 31.2x trailing 12-month earnings. The stock is trading at a discount to the industry average based on forward earnings estimates for fiscal 2015, while at a premium based on fiscal 2016 earnings estimate. Our target price of $93.00, 28.5x 2015 EPS, reflects this view.

Key Indicators

Brown-Forman Corporation-B (BF.B)

P/E F1

27.2

P/E F2

24.5

Est. 5-Yr EPS Gr%

9.1

P/CF (TTM)

27.1

P/E (TTM)

28.5

P/E 5-Yr High (TTM)

31.2

Industry Average S&P 500

28.0 22.4

11.8

17.8 16.7

10.7

18.0 33.5 N/A 16.1 19.2 19.6

Constellation Brands Inc. (STZ)

23.4 20.9

16.5

23.5 24.3 26.8

Molson Coors Brewing Co. (TAP)

17.7 17.7

5.7

11.5 17.9 18.2

Compania Cervecerias Unidas S.A. (CCU)

16.1 16.1

10.6

14.1 15.5 22.6

TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow

P/E 5-Yr Low (TTM)

16.5

14.2 12.0

8.1 9.9 9.0

Brown-Forman Corporation-B (BF.B)

P/B Last Qtr.

10.1

Industry Average

4.2

S&P 500

7.2

P/B 5-Yr High

10.2

4.2 9.8

P/B 5-Yr Low

4.2

ROE (TTM)

34.1

D/E Last Qtr.

0.5

4.2

12.8

0.4

3.2

23.3

N/A

Div Yield Last Qtr.

1.2

1.2 1.9

EV/EBITDA (TTM)

19.3

9.1 N/A

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