Brown-Forman Corporation (BF.B) has reported mixed third-quarter fiscal 2025 results, wherein the bottom line surpassed the Zacks Consensus Estimate while the top line missed. The company’s sales declined year over year on a reported basis, while earnings per share (EPS) also fell from the prior-year quarter. Quarterly results were hurt by soft sales for the tequila portfolio.
In the fiscal third quarter, EPS of 57 cents dipped 5% year over year but surpassed the Zacks Consensus Estimate of 47 cents.
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Brown-Forman Corporation Price, Consensus and EPS Surprise
Brown-Forman Corporation Price, Consensus and EPS Surprise
Net sales of $1.035 billion dipped 3% on a reported basis and came below the Zacks Consensus Estimate of $1.072 billion. On an organic basis, net sales improved 6% from the prior-year period.
This Zacks Rank #3 (Hold) company’s shares have lost 26.4% in the past three months compared with the industry’s 6.9% decline.
Brown-Forman’s Margins & Expenses
In the fiscal third quarter, Brown-Forman’s gross profit of $619 million declined 3% year over year on a reported basis but increased 5% on an organic basis. However, the gross margin increased 40 basis points to 59.8%.
Selling, general and administrative (SG&A) expenses of $178 million declined 13% year over year on a reported basis and 7% on an organic basis. Reduced SG&A expenses were led by lower compensation-related expenses.
Operating income decreased 25% year over year to $280 million on a reported basis. The organic operating income advanced 23%. The operating margin of 27.1% fell sharply from 34.9% reported in the year-ago quarter.
Understanding Brown-Forman’s Market Performance
In the nine months of fiscal 2025, the company’s net sales declined 4% on a reported basis but up 2% on an organic basis.
Net sales in the United States decreased 5% year over year on a reported basis and 1% on an organic basis in the first nine months, driven by the divestitures of Sonoma-Cutrer, weak volumes of Korbel California Champagnes and Jack Daniel’s Tennessee Whiskey and adverse impacts of JDCC. Higher estimated distributor inventories contributed to net sales. However, this softness was partly offset by growth in Woodford Reserve as the brand outperformed the U.S. Whiskey category.
In developed international markets, net sales decreased 5% year over year and 1% on an organic basis due to soft industry trends led by the absence of the Finlandia brand and adverse impacts of foreign exchange, coupled with lower volumes in South Korea, Germany and the United Kingdom. This was somewhat offset by increased volumes of Jack Daniel’s Tennessee Whiskey in Japan, owing to the changes in distributor ordering patterns in the year-ago period and contributions from Diplomático.
Net sales in the emerging markets declined 4% on a reported basis but grew 8% on an organic basis. The decline was led by the Finlandia divestiture, adverse currency fluctuations and reduced sales in the Tequila portfolio in Mexico. However, the growth of Jack Daniel’s family of brands in Türkiye, the United Arab Emirates and Brazil, along with robust volumes of New Mix, partially offset the decline.
The Travel Retail channel saw a net sales drop of 5% on a reported basis and 2% on an organic basis due to reduced volumes for Jack Daniel’s other super-premium expressions. The Finlandia divestiture also impacted sales. This decline was somewhat negated by the growth of Diplomático.
A Peek at BF.B’s Categories’ Performance
In the first nine months of fiscal 2025, net sales for Whiskey products were flat year over year but rose 2% on an organic basis. Growth from Woodford Reserve and Jack Daniel’s Tennessee Whiskey was negated by the adverse impacts of foreign exchange and weak other super-premium Jack Daniel’s expressions. These expressions comprise Jack Daniel’s Single Barrel and several other Jack Daniel’s special releases, which fell following a robust prior-year comparison, partly driven by several product launches. An expected net increase in distributor inventories contributed to net sales.
Net sales for the tequila portfolio slumped 15% year over year on a reported basis and 13% on an organic basis, due to a competitive landscape in the United States and tough macroeconomic conditions in Mexico. el Jimador’s net sales declined 13% (-11% organic), due to by lower volumes in the United States and Mexico, partly offset by increased prices in the United States. Herradura brand’s sales dropped 13% on a reported basis and 11% on an organic basis on lower volumes in Mexico.
The company witnessed a year-over-year sales drop of 4% but growth of 6% on an organic basis for the Ready-to-Drink (RTD) category. Sales for New Mix were up 2% on a reported basis and improved 13% on an organic basis on increased volumes in Mexico, partly offset by the adverse effects of foreign exchange. Jack Daniel’s RTDs/Ready-to-Pours reported a sales drop of 7% on a reported basis and a sales improvement of 3% on an organic basis, led by the Jack Daniel’s Country Cocktails business model change (JDCC)2.
The company’s rest of the portfolio sales plunged 31% year over year and were flat on an organic basis, thanks to the Finlandia and Sonoma-Cutrer divestitures and reduced volumes of Korbel California Champagnes in the United States. This was somewhat offset by gains from Diplomático and Gin Mare. Higher expected distributor inventories further aided net sales.
BF.B’s Financial Health Snapshot
The company ended third-quarter fiscal 2025 with cash and cash equivalents of $599 million and long-term debt of $2.4 billion. Its total shareholders’ equity was $3.8 billion. As of Jan. 31, 2025, BF.B had $446 million in cash from operating activities.
What to Expect From Brown-Forman in Fiscal 2025?
The operating landscape is quite volatile, owing to geopolitical uncertainties and global macroeconomic conditions. However, Brown-Forman expects to revert to organic net sales and organic operating income growth in fiscal 2025. Based on such factors, management reaffirmed guidance.
In fiscal 2025, Brown-Forman continues to project organic net sales growth to be in the band of 2-4%. The company also expects organic operating income to increase 2-4%. The effective tax rate is expected to be in the band of 20-22% compared with 21-23% forecasted earlier. Capital expenditure is still anticipated to be $180-$190 million.
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