Brown-Forman Corp. (NYSE:BF) (NYSE:BF) stock rose Wednesday despite weaker-than-expected fiscal first-quarter results.
The company also discussed its previously announced leadership transition. CEO Lawson E. Whiting plans to retire after nearly 30 years with the company. He will step down once the board appoints a successor. The search includes internal and external candidates.
Sales Miss Estimates, Margin Improves
The Louisville-based company, whose brands include Jack Daniel’s, Old Forester, Woodford Reserve, Herradura and el Jimador, reported diluted earnings of 38 cents per share. That missed the analyst estimate of 39 cents.
Sales fell 1% to $911 million, below the consensus estimate of $933.02 million. Organic sales also declined 1%.
Operating income fell 3% to $252 million. However, organic operating income rose 4%. Gross margin expanded by 40 basis points to 60.2%, helped by lower costs and favorable portfolio changes.
Operating cash flow totaled $173 million. Free cash flow reached $161 million.
The end of the Korbel relationship, lower used barrel sales and tequila weakness weighed on revenue. Growth in ready-to-drink products partly offset those pressures.
Demand for used barrels from Scotch and Irish whiskey producers remained weak. Organic sales from the non-branded and bulk business have plunged more than 60% over two years, from above $100 million to about $30 million.
Ready-To-Drink Sales Jump
Whiskey sales were flat. Growth from the international rollout of Jack Daniel’s Tennessee Blackberry offset declines in Jack Daniel’s Tennessee Honey and Gentleman Jack.
Ready-to-drink sales jumped 20%, or 11% organically. New Mix sales surged 48%, or 36% organically, driven by strong demand in Mexico and its U.S. launch.
Meanwhile, tequila sales fell 12%, or 13% organically. Herradura sales dropped 17%, while El Jimador declined 10%.
Non-branded and bulk sales sank 61% due to lower used barrel sales.
Emerging Markets Deliver Growth
U.S. sales declined 3% but were flat organically. The end of the Korbel relationship and lower distributor inventories hurt reported sales.
Developed international sales fell 6%, or 8% organically. Lower Jack Daniel’s Tennessee Whiskey volumes in Germany, France and Spain drove the decline.
In contrast, emerging-market sales rose 11%, or 9% organically. Mexico led the growth, supported by double-digit gains for New Mix.
Travel retail sales declined 1% on both a reported and organic basis. Geopolitical pressures in the Middle East weighed on the channel.
Brown-Forman Expands Blackberry Line
Jack Daniel’s Tennessee Blackberry was available in more than 30 international markets. The product recorded strong growth in Brazil, France and the United Arab Emirates.
Brown-Forman is also expanding the franchise through new products. Those include Jack Daniel’s Tennessee Blackberry and Lemonade in a ready-to-drink format.
Outlook Reaffirmed
During the earnings call, Brown-Forman warned that its first-quarter gross margin of 60.2% may be the high point for fiscal 2027. The company expects higher-cost whiskey inventory, rising commodity expenses and lower production volumes to pressure margins through the rest of the year.
Brown-Forman reaffirmed its fiscal 2027 outlook. The company expects organic sales to remain roughly flat.
It also continues to forecast a 3% to 5% decline in organic operating income. However, management expressed greater confidence that results would land near the stronger end of that range.
Higher-cost whiskey inventory and inflation remain headwinds. Brown-Forman expects capital spending of $60 million to $70 million, well below recent levels.
BF/A Price Action: Brown-Forman shares were up 4.07% at $28.11 at the time of publication on Wednesday, according to Benzinga Pro data.
Photo via Shutterstock
Login to comment