Brown-Forman's Q1 Profit Margin Squeezed As Whiskey And Tequila Sales Plunge

Brown Forman Inc BF BF reported first-quarter 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 prior year period.

The company said net sales declined across all geographic aggregations partially due to the timing of shipments in the year-ago period related to inventory replenishment and the execution of its pricing strategy.

Net sales for Whiskey products fell 5%, with declines in Jack Daniel's Tennessee Whiskey outweighing gains from Old Forester and Woodford Reserve. The Tequila portfolio saw a 23% drop, driven by lower sales of el Jimador and Herradura.

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The Ready-to-Drink (RTD) segment sales declined 12%, affected by Jack Daniel’s Country Cocktails business model changes.

Overall, the Rest of Portfolio experienced an 18% decrease due to the Finlandia divestiture and negative foreign exchange effects, partially mitigated by positive contributions from Diplomático.

Gross profit fell by 13% (-8% organic), leading to a 330 basis point reduction in gross margin to 59.4%. This decline was primarily due to fluctuating input costs, elevated inventory levels, and the effects of transition services agreements (TSAs) related to the divestitures of Finlandia and Sonoma-Cutrer.

The company's operating income decreased 14%, with an operating margin decrease of 200 basis points to 29.6%. The decrease in operating margin was largely driven by the timing of input cost fluctuations coupled with high inventory levels.

Outlook: For fiscal 2025, Brown-Forman reiterates organic net sales growth of 2% to 4% and organic operating income growth of 2% to 4%. The company anticipates an effective tax rate between approximately 21% and 23% and plans to allocate capital expenditures of $195 million to $205 million.

Meanwhile, the company also warned that global macroeconomic and geopolitical uncertainties will continue to create a challenging operating environment.

Price Action: BF/B shares are trading higher by 0.40% to $45.03 at last check Thursday. BF/A shares are trading higher by 0.71% to $45.59.

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