Brown-Forman shares fall despite results above predictions

While US consumers remain resistant to price increases, easing costs of raw materials such as agave and wood for barrels, helped Brown-Forman to achieve earnings per share of US$0.56 in its fourth quarter to the end of April.

That was well above analysts’ consensus predictions of US$0.42 cents and a 29% increase on the same period last year.

Nevertheless, the shares fell by almost 3% on the news.

They have shed 19% so far this year while Wall Street has gained 11%.

Turnover in the quarter was 8% lower with net sales of US$964 million compared with estimates of US$1.03 billion.

For the full year Brown-Forman’s net sales decreased by just 1% but operating income rose by 26% to US$375 million.

Many of the problems facing the spirits sector in the US have stemmed from lower levels of stocks being held by distributors and retailers unwilling to finance extra orders as interest rates rose and consumer demand dwindled.

Return to growth

Chief executive Lawson Whiting said: “While our fiscal 2024 organic results reflect the inventory reductions across the entire spirits value chain, when you adjust for the changes in distributor inventory, we feel good about the results we delivered and are confident in the strength of our strategy, brands, and business.

“We anticipate a return to growth for organic net sales and organic operating income in fiscal 2025 driven by gains in international markets and the benefit of normalizing inventory trends.

“This outlook is tempered by our belief that global macroeconomic and geopolitical uncertainties will continue to create a challenging operating environment,” he said.

Across the brands, in the latest quarter Brown-Forman saw a 2% decline in the organic sales of its whiskies owing to lower volumes for Jack Daniel’s Tennessee Whiskey and Jack Daniel’s Tennessee Honey, reflecting an estimated net decrease in distributor inventories.

Tequila

Organic sales of Tequilas were 7% lower but ready-to-drink lines were 2% ahead.

Brown-Forman now forecasts annual organic sales growth in the range of 2% to 4% for its present year, slightly below the long-run trend for the industry majors.

Eyes are now turning to figures over the next few weeks from the likes of LVMH (Moet Hennessy), Diageo and Pernod Ricard for whom their US salesare the most significant parts of their business.

Whiting has said previously that Brown Forman has been taking a cautious approach to premiumisation, raising prices in easy steps of 2% to 3%, but its rivals have been more aggressive during the downturn.