BF.B Misses Q1 Earnings & Sales Estimates on Soft Volume, Stock Dips
Brown-Forman Corporation (BF.B) has reported dismal first-quarter fiscal 2025 results, wherein the top and bottom lines lagged the Zacks Consensus Estimate and declined year over year. Lower volumes across brands and regions primarily impacted the top line, while weak margins affected the bottom line. Despite the depressing performance, the company reiterated its organic sales and earnings per share (EPS) guidance for fiscal 2025.
In the fiscal first quarter, earnings per share (EPS) of 41 cents declined 14% year over year and missed the Zacks Consensus Estimate of 46 cents.
Net sales of $951 million declined 8% on a reported basis and missed the Zacks Consensus Estimate of $989.3 million. On an organic basis, net sales were down 4% from the prior-year period. Sales declines were primarily led by reduced sales of Jack Daniel’s Tennessee Whiskey and the divestiture of Finlandia. The company experienced weaker sales trends across all geographic regions due to more favorable shipment timings in the previous year, which were linked to inventory replenishment and the implementation of its pricing strategy.
Shares of Brown-Forman dipped 1.5% in the pre-market trading session on Aug 29, owing to the dismal first-quarter fiscal 2025 performance. The Zacks Rank #3 (Hold) company’s shares have lost 21.4% year to date compared with the industry’s 9.2% decline.
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In the fiscal first quarter, Brown-Forman’s gross profit of $565 million fell 13% year over year on a reported basis and 8% on an organic basis. The gross margin contracted 330 basis points to 59.4% due to the timing of input cost fluctuations and high inventory levels. The transition services agreements related to the divestitures of Finlandia and Sonoma-Cutrer also affected the gross margin.
Our model predicted a gross margin expansion of 140 bps from the year-ago quarter to 64.1% for the fiscal first quarter.
Selling, general and administrative (SG&A) expenses of $188 million declined 6% year over year and 5% on an organic basis. Reduced SG&A expenses were led by lower compensation-related expenses. Advertising expenses decreased 4% year over year to $126 million. On an organic basis, advertising expenses declined 1%. The decrease in advertising expenses was due to the impacts of recently divested brands, and lower spending on Jack Daniel’s and Coca-Cola ready-to-drink (RTD) than higher product launch costs in the previous year.
We expected advertising expenses to decline 1.9% year over year to $128.5 million and SG&A expenses to increase 2.8% year over year to $205.5 million for the fiscal first quarter.
Operating income fell 14% year over year to $281 million on a reported basis. The organic operating income slumped 13%. The operating margin of 29.6% contracted 190 bps from the 31.5% reported in the year-ago quarter.
Our model predicted an operating margin contraction of 100 bps from the year-ago quarter to 30.5% for the fiscal first quarter.
Brown-Forman Corporation Price, Consensus and EPS Surprise
Brown-Forman Corporation price-consensus-eps-surprise-chart | Brown-Forman Corporation Quote
Understanding Brown-Forman’s Market Performance
In the first quarter of fiscal 2025, net sales in the United States decreased 5% year over year on a reported basis and 4% on an organic basis due to lower volumes for Jack Daniel’s Tennessee Whiskey, el Jimador and Korbel California Champagnes. Additionally, the volumes were impacted by the Jack Daniel’s Country Cocktails (“JDCC”) business model change. However, the decline was partly negated by growth in Woodford Reserve and Old Forester, which continued to outperform the U.S. Whiskey category.
In developed international markets, net sales decreased 9% year over year and 6% on an organic basis due to lower volumes of Jack Daniel’s Tennessee Whiskey, especially in the U.K., and the Finlandia divestiture. This decline was partially mitigated by volume growth for Jack Daniel’s Tennessee Whiskey in Japan, which resulted from changes in distributor ordering patterns.
Net sales in the emerging markets declined 16% on a reported basis and 5% on an organic basis, led by declines in New Mix and the Tequila portfolio in Mexico, and Jack Daniel’s Tennessee Whiskey in the UAE. Adverse currency fluctuations, particularly a strong U.S. dollar against the Turkish lira, and the Finlandia divestiture contributed to the decline. However, higher prices for Jack Daniel’s Tennessee Whiskey in Türkiye and increased volumes of Jack Daniel’s Tennessee Apple in Brazil partially offset the decline.
The Travel Retail channel saw net sales drop 11% on a reported basis and 8% on an organic basis due to reduced volumes for Jack Daniel’s super-premium expressions and Woodford Reserve. The Finlandia divestiture also impacted sales. This decline was partly negated by growth from Diplomático.
A Peak Into How BF.B’s Categories Performed
In the first quarter of fiscal 2025, net sales for Whiskey products fell 5% year over year and 3% on an organic basis. The decline was primarily led by lower volumes of Jack Daniel’s Tennessee Whiskey due to unfavorable comparisons with shipment timings from the previous year in the United States, the UAE, and the U.K. The strengthening of the U.S. dollar against the Turkish lira negatively impacted Jack Daniel’s Tennessee Whiskey. However, this decline was partially offset by increased sales of Old Forester and Woodford Reserve.
Net sales for the tequila portfolio slumped 23% year over year on both reported and organic basis. Sales for el Jimador declined 26% on both reported and organic basis, led by soft volumes in the United States, Colombia and Mexico. Sales for the Herradura brand fell 15% on a reported and 14% on an organic basis on lower volumes in Mexico.
The company witnessed a year-over-year sales decline of 12% and 4% on an organic basis for the RTD category. Sales for New Mix were down 11% on a reported basis and 9% on an organic basis on lower volumes in Mexico. Jack Daniel’s RTDs/Ready-to-Pours reported a sales drop of 13% on a reported and 2% on an organic basis, led by lower volumes due to the impacts of JDCC.
The company’s rest of the portfolio’s sales declined 18% year over year and improved 1% on an organic basis. Organic sales benefited from the Finlandia divestiture, while negative currency effects hurt reported sales.
BF.B’s Financial Health Snapshot
The company ended first-quarter fiscal 2025 with cash and cash equivalents of $416 million, and long-term debt of $2.4 billion. Its total shareholders’ equity was $3.5 billion. As of July 31, 2024, BF.B had $17 million in cash from operating activities.
What to Expect From Brown-Forman in Fiscal 2025?
In fiscal 2025, management anticipates a return to growth for organic net sales and organic operating income, backed by gains in the international markets and the benefit of normalizing inventory trends. The company projects organic net sales growth of 2-4%.
Brown-Forman expects the organic operating income between 2% and 4%. The effective tax rate is expected to be 21-23%. Capital expenditure is anticipated to be $195-$205 million.
Solid Picks in BF.B’s Broader Sector
We have highlighted three better-ranked stocks from the Zacks Consumer Staples sector, namely The Chef’s Warehouse CHEF, Flowers Foods FLO and Nomad Foods Limited NOMD.
Chef’s Warehouse, engaged in distributing specialty food products, currently flaunts a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Chef’s Warehouse’s current fiscal-year sales and EPS indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods is keen on providing high-quality baked items, developing strong brands, making innovations to improve capabilities and undertaking prudent acquisitions. It currently carries a Zacks Rank #2 (Buy).
The consensus estimate for Flowers Foods’ current financial-year sales and EPS implies growth of 1.1% and 4.2%, respectively, from the year-ago reported numbers. FLO has a trailing four-quarter average earnings surprise of 1.9%.
Nomad Foods, which manufactures and distributes frozen foods primarily in the U.K., Italy, Germany, Sweden, France and Norway, currently carries a Zacks Rank of 2. NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales and EPS indicates growth of 4.3% and 11.5%, respectively, from the year-ago reported numbers.
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