March 6 (Bloomberg) -- Brown-Forman Corp., the maker of Jack Daniel's Tennessee Whiskey, said profit fell less than analysts expected after sales rose the most in five years and gains a year earlier weren't repeated.

Sales in the quarter ended Jan. 31 jumped 20 percent to $754.8 million on Europe and Asia demand, Brown-Forman said today in a statement. Excluding some items, it said profit would have been 89 cents a share, exceeding the 83-cent estimate of five analysts in a Bloomberg News survey. The company raised the lower end of its full-year earnings forecast.

Jack Daniel's sales increased by more than 10 percent in countries including the U.K., Australia and Japan, and Finlandia vodka's volume rose at least 10 percent on demand in Eastern Europe. The company paid $776 million in January to buy Grupo Industrial Herradura SA's Mexican tequila brands to expand its spirits offerings in the U.S.

``This company is on a tremendous roll with good sales growth internationally,'' said Timothy Ramey, an analyst with Lake Oswego, Oregon-based D.A. Davidson & Co. He expected sales to rise 14 percent. ``Jack and Finlandia are leading the gains overseas.''

Net income declined to $105.1 million, or 85 cents a share, from $120.5 million, or 98 cents, when the company had gains totaling 18 cents a share on a winery sale and Australian distribution changes. Year-ago sales were $627.6 million.

Class B shares of Louisville, Kentucky-based Brown-Forman rose $1.04, or 1.6 percent, to $65.79 as of 4:06 p.m. in New York Stock Exchange composite trading. They lost 4.4 percent last year, the first annual decline in five years.

Annual Forecast

Brown-Forman today narrowed its full-year per-share earnings forecast, excluding some items, to $3.20 to $3.30, from a previous range of $3.14 to $3.30. It includes an 8-cent gain from the sale of its Bolla winery in Italy, and planned reductions in inventory and a higher tax rate the company expects in the fourth quarter.

For the year, Brown-Forman reiterated that the Herradura acquisition will cut profit by 14 cents to 18 cents a share.

Third-quarter net income included costs of 2 cents a share for Herradura, a 3-cent charge for inventory reductions as well as a gain of 6 cents for favorable currency exchange rates, Brown-Forman said.

Chief Executive Officer Paul Varga, 43, raised advertising spending by 11 percent to $94 million in the third quarter to promote Jack Daniel's, Finlandia and Chambord black raspberry- flavored liqueur.

Jack Daniel's

Jack Daniel's global sales to retailers rose by a ``mid- single digit'' rate during the third quarter, led by gains of more than 10 percent each in the U.K., Germany, Australia and Japan, and ``low single-digit'' increases in the U.S. A year earlier, Jack Daniel's volume rose by the ``high single digits.''

On a percentage basis, the long-term growth rate for Jack Daniel's will be in the ``mid-single digits for a sustained period of time'' Varga said, as the whiskey faces pricing competition from brands including Fortune Brands Inc.'s Jim Beam.

``What's becoming more competitive is the pricing,'' Varga said today on a conference call with investors and analysts, without being more specific. ``Other people are taking their pricing down'' and some retailers are trimming prices.

Volume for Jack Daniel's is almost 9 million cases annually, with nearly half of the sales coming from overseas, Varga said. Seven years ago, it had volume of 6 million cases, with 60 percent of sales in the U.S.

U.S. Liquor Sales

Liquor sales in the U.S. climbed 6.3 percent last year to $17 billion, the biggest gain in two years, on higher demand for super-premium vodka and whiskey, according to the Distilled Spirits Council of the United States.

Spirits made up 32.8 percent of alcohol spending last year, up from 28.7 percent in 2000, the Washington-based group said.

By adding Herradura tequila brands, Brown-Forman gains more expensive brands of the fast-growing spirit. Herradura costs $40 a bottle and had volume of 380,000 cases last year. A sister brand called El Jimador costs $20 and sold 1.4 million cases.

Brown-Forman's per-share profit will be cut by up to 4 cents annually for the next few years as the company buys U.S. distribution rights from companies who handle the Herradura brands, Chief Financial Officer Phoebe Wood said on the call.

Varga declined to comment on whether Brown-Forman is interested in buying Vin & Sprit AB, the Swedish maker of spirits including Absolut vodka, which is owned by the government and may be up for sale. Analysts have speculated Vin & Sprit may fetch $6 billion.

Absolut is a ``wonderful brand that I'm sure will get the interest of a lot of people in the industry,'' Varga said.

In the year-earlier third quarter, Brown-Forman said it had profit from continuing operations of $150.3 million, or 80 cents a share, after it changed an Australian distribution joint venture, sold distribution rights for the Glenmorangie brands and sold a California winery.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

Last Updated: March 6, 2007 16:41 EST