Brown-Forman Inc (BF.B, BF.A), the renowned spirits producer known for brands like Jack Daniel’s, reported a mixed bag of results for its first quarter, with earnings falling short of analyst expectations while revenue saw a significant decline.
The company reported earnings per share of 41 cents, missing the analyst consensus of 47 cents. Quarterly net sales decreased 8% to $951 million (-4% on an organic basis) compared to the same period last year. This decline was felt across all geographic regions, partly due to the timing of shipments in the previous year related to inventory replenishment and the company’s pricing strategies.
Whiskey sales, which represent a core part of Brown-Forman’s portfolio, decreased by 5%. This decline was primarily driven by a drop in Jack Daniel’s Tennessee Whiskey sales, which outweighed gains from other brands like Old Forester and Woodford Reserve. The Tequila portfolio also witnessed a 23% decline, attributed to lower sales of el Jimador and Herradura.
The Ready-to-Drink (RTD) segment saw a 12% drop in sales, impacted by Jack Daniel’s Country Cocktails’ business model changes. The Rest of Portfolio category experienced an 18% decrease, mainly due to the Finlandia divestiture, negative foreign exchange effects, and partially mitigated by positive contributions from Diplomático.
Brown-Forman’s gross profit declined by 13% (-8% organic), leading to a 330 basis point reduction in gross margin to 59.4%. This reduction was largely attributed to fluctuating input costs, elevated inventory levels, and the impact of transition services agreements related to the divestitures of Finlandia and Sonoma-Cutrer.
The company’s operating income also saw a decline of 14%, with an operating margin decrease of 200 basis points to 29.6%. This decrease was largely driven by the timing of input cost fluctuations coupled with high inventory levels.
Despite the challenging quarter, Brown-Forman remains optimistic about its future growth. The company reiterated its forecast for fiscal 2025, projecting organic net sales growth of 2% to 4% and organic operating income growth of 2% to 4%. Brown-Forman also anticipates an effective tax rate between approximately 21% and 23% and plans to allocate capital expenditures of $195 million to $205 million.
However, the company acknowledged that global macroeconomic and geopolitical uncertainties will continue to create a challenging operating environment.
As of Thursday’s market close, BF/B shares were trading higher by 0.40% at $45.03, while BF/A shares were trading higher by 0.71% at $45.59.
