Overview

Brown-Forman, a leading global spirits and wine company, has released its financial results for the first six months of fiscal year 2025. The report highlights several key developments, including the divestiture of the Finlandia vodka and Sonoma-Cutrer wine businesses, as well as the impact of the Jack Daniel’s & Coca-Cola (JDCC) ready-to-drink product.

Financial Performance

For the six-month period ended October 31, 2024, Brown-Forman reported net sales of $2.0 billion, a decrease of 5% compared to the same period last year. This decline was driven by the negative effects of the divestitures, lower sales volumes, the impact of JDCC, and the negative impact of foreign exchange.

Gross profit for the period was $1.2 billion, down 8% from the prior year. Gross margin decreased from 61.6% to 59.2%, primarily due to the timing of input cost fluctuations, the negative impact of foreign exchange, and the effect of the transition service agreements (TSAs) related to the divestitures. These factors were partially offset by favorable price/mix and the impact of JDCC.

Operating income for the six-month period was $622 million, a decrease of 7% compared to the prior year. This decline was largely driven by the timing of input cost fluctuations, the negative impact of the divestitures, and the negative effect of foreign exchange. The decrease was partially offset by favorable price/mix, advertising and SG&A expense leverage, a franchise tax refund, and a gain on the sale of the Alabama cooperage.

Diluted earnings per share for the six-month period was $0.96, down 3% from the prior year, primarily due to the decrease in operating income, partially offset by a lower effective tax rate.

Segment and Brand Performance

From a geographic perspective, the company saw net sales declines across most of its major markets, including the United States, Developed International, and Emerging markets. The United States, the company’s largest market, saw a 7% decline in net sales, driven by lower volumes of Jack Daniel’s Tennessee Whiskey (JDTW) and Korbel California Champagnes, as well as the divestiture of Sonoma-Cutrer and the impact of JDCC.

In the Developed International markets, net sales declined 5%, with Germany, Australia, the United Kingdom, and Spain all experiencing decreases. The Emerging markets saw a 3% net sales decline, with Mexico and Poland seeing double-digit decreases, partially offset by strong growth in Brazil.

Looking at the company’s brand performance, the Whiskey category, which includes the Jack Daniel’s family of brands, saw a 1% net sales decline. JDTW, the company’s flagship brand, saw a 1% decrease in net sales. Other Jack Daniel’s brand extensions, such as Jack Daniel’s Tennessee Honey (JDTH) and Jack Daniel’s Tennessee Apple (JDTA), also experienced declines. The Woodford Reserve and Old Forester brands, however, saw net sales increases of 8% and 11%, respectively.

The Ready-to-Drink (RTD) category, which includes the Jack Daniel’s RTD and RTP (ready-to-pour) products, saw a 6% net sales decline, primarily due to the impact of JDCC. The Tequila category, which includes the el Jimador and Herradura brands, experienced a 17% net sales decrease.

The Rest of Portfolio category, which includes the recently divested Finlandia vodka and Sonoma-Cutrer wine brands, saw a 26% net sales decline.

Strengths and Weaknesses

One of Brown-Forman’s key strengths is its flagship Jack Daniel’s brand, which accounts for a significant portion of the company’s net sales. The Jack Daniel’s family of brands, including extensions like JDTH and JDTA, continue to be the backbone of the business, despite some recent volume declines.

Another strength is the company’s portfolio of premium and super-premium brands, such as Woodford Reserve and Old Forester, which have demonstrated strong growth. These higher-end offerings help to offset some of the volume declines in the core Jack Daniel’s brand.

However, the company’s reliance on the Jack Daniel’s brand is also a potential weakness, as any significant decline in this brand could have a substantial impact on the overall business. The divestitures of Finlandia and Sonoma-Cutrer also highlight the company’s vulnerability to changes in its brand portfolio.

The negative impact of foreign exchange and the timing of input cost fluctuations, coupled with high inventory levels, have also weighed on the company’s profitability during the period. These external factors are beyond the company’s direct control and can create challenges in maintaining consistent financial performance.

Outlook and Future Prospects

Looking ahead, Brown-Forman expects to return to organic net sales and operating income growth in fiscal year 2025, driven by gains in international markets and the normalization of inventory trends. However, the company acknowledges that global macroeconomic and geopolitical uncertainties will continue to create a challenging operating environment.

Specifically, the company expects:

• Organic net sales growth in the 2% to 4% range
• Organic operating income growth in the 2% to 4% range
• An effective tax rate in the range of approximately 21% to 23%

The company has also updated its estimated capital expenditure range to $180 to $190 million, down from the previous range of $195 to $205 million.

Conclusion

Brown-Forman’s financial results for the first six months of fiscal year 2025 reflect the challenges the company has faced, including the impact of divestitures, foreign exchange, and input cost pressures. While the Jack Daniel’s brand remains a strong foundation, the company’s reliance on this brand and its vulnerability to external factors are areas of concern.

Looking ahead, the company is optimistic about its ability to return to organic growth, but it acknowledges the continued uncertainty in the global operating environment. Investors and stakeholders will be closely watching the company’s ability to navigate these challenges and capitalize on the strengths of its premium brand portfolio.