Brown-Forman has reaffirmed its full-year outlook, despite reporting lower volumes and profit decline, citing shifting ordering patterns and a weak consumer.
The group’s CEO stated that the company was “confident and reaffirming” its full year 2025 outlook of organic net sales growth of 2% to 4%.
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Countries including the US and the UK gave the group the most trouble, with each market seeing lower volumes in the group’s first quarter fiscal 2025 results.
Reported net sales in the US were down 5% and 4% on an organic basis year-on-year in the three months ended July 2024. Meanwhile in the UK, this dropped on a reported basis by 21%, and by 23% organically.
Brown-Forman’s volumes were impacted in the US and UK by a “shift in ordering patterns” driven by pre-emptive purchases of stock by distributors in the US ahead of price increases and excise tax duty hikes in the UK.
In its first quarter results for the period ended 31 July, Brown-Forman reported net sales of $951m, down 8% year-on-year. The Jack Daniel’s distiller posted a 16% decrease in net income to $195m. Brown-Forman CEO Lawson Whiting told analysts that “this decline was expected”.
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By GlobalDataThe group’s CFO Leanne Cunningham said: “Consistent with our expectations, distributors are continuing to target the low end of their normal range as higher inflation and interest rates are impacting the consumer and trade,
“From a takeaway perspective, trends for total distilled spirits as well as Brown-Forman remain below the long-term historical rates of growth. While rates of growth are moderating, the premiumisation trend continues to persist with higher priced tiers continuing to grow value and maintain share as value priced brands are losing share to RTDs.
“The growth in the $40 and above price tiers are driven largely by the US whiskey and Tequila categories,” Cunningham added.
Whiting told analysts that one reason for the sales decline was a change in how it managed its Jack Daniel’s Country cocktail business.
In 2021, the group entered a partnership with Pabst Brewing Co. for the sales, supply and distribution of the Daniel’s Country cocktail brand. However, Brown-Forman was still handling some of the brand’s production and has just moved all its production to Pabst Brewing Co., a transfer Whiting said caused “significantly lower” sales.
Brown-Forman’s Tequila portfolio took a hit in its first quarter as el Jimador’s net sales declined 26%, while its Herradura brand fell 15%. In its quarterly presentation the US distiller noted that potential downside risks to its outlook would be further agave price increases or a “meaningful slowdown” in Tequila.
Brown-Forman’s CFO said: “We expect the second half of the year to be stronger as we anticipate that we will benefit from having a full year of growth from our outstanding new brands of Gin Mare and Diplomático and we will begin to compare against the softening of total distilled spirits trends in the year ago period.”
“One thing that we know is while we do continue to see a stretched consumer that is seeking to stretch their discretionary income, premiumisation trends are continuing. And we feel like our portfolio is incredibly well positioned for that premiumisation trend to continue,” Cunningham told analysts.
When asked if the group was worried about the proliferation of cannabis beverages, Whiting said he didn’t believe it would have an impact on spirit trends.
“So now people have said… if there is some cannibalisation between cannabis and beverage alcohol, [that] beer is the one that’s at risk. And I kind of can believe that. I mean it makes logical sense I think, and spirits in particular would be the least affected by that,” he added.
“Last quarter, Brown-Forman’s results were characterised by an immense distributor inventory headwind though somewhat robust end-demand from the lens of underlying growth,” Bernstein analysts said. “This quarter, the tables have turned. Distributor inventories appear to be right-sized, yet end-demand is weak across the board.
“The theme of this consumer earnings cycle has been a weakening consumer, with today’s results being case in point.”
