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Brown-Forman B (BF.B) Up 2.4% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Brown-Forman B (BF.B - Free Report) . Shares have added about 2.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Brown-Forman B due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Brown-Forman Q2 Earnings In Line, View Cut
Brown-Forman has reported mixed second-quarter fiscal 2024 results, wherein sales missed the Zacks Consensus Estimate, while earnings meet the same. Meanwhile, sales and earnings improved year over year.
In the fiscal second quarter, earnings per share (EPS) of 50 cents rose 6% year over year and were in line with the Zacks Consensus Estimate.
Net sales of $1,107 million missed the Zacks Consensus Estimate of $1,156 million. The top line increased 1% year over year on a reported basis. On an organic basis, net sales were down 1% from the prior-year level.
In second-quarter fiscal 2024, Brown-Forman’s gross profit of $671 million increased 9% year over year on both reported and organic basis. The gross margin expanded 460 basis points (bps) to 60.6%. The gross margin was aided by an improved price/mix, lapping higher costs related to the supply-chain disruptions in the year-ago quarter and lower tariff-related expenses. This was partly negated by higher input costs and adverse currency rates.
SG&A expenses of $192 million rose 7% year over year and 6% on an organic basis. The increase stemmed from higher compensation and benefit-related expenses. Advertising expenses increased 16% year over year to $140 million for the fiscal second quarter. On an organic basis, advertising expenses increased 10%. Elevated advertising costs mainly resulted from the launch of Jack Daniel’s and Coca-Cola RTDs, increased investments in Jack Daniel’s Tennessee Whiskey, and the acquisition of Gin Mare and Diplomatico.
We expected total operating expenses to increase 11.3% year over year to $333.8 million in the fiscal second quarter, driven by a 2.9% rise in advertising expenses, and an 11.6% increase in selling, general and administrative expenses.
The operating income improved 8% year over year to $339 million on a reported basis due to an improved gross margin, offset by operating expense growth. The organic operating income rose 9%. The operating margin of 30.6% expanded 190 bps from the 28.7% reported in the year-ago quarter.
Our model predicted an operating margin of 29.3%, suggesting a 70-bps expansion from the year-ago quarter’s actual.
Market-Wise Performance
In the first half of fiscal 2024, net sales rose 2% on a reported basis and 1% on an organic basis. The improvement was mainly driven by growth in emerging and developed international markets, as well as the Travel Retail channel. However, sales growth was partly negated by a decline in the United States.
The emerging markets registered 17% net sales growth, whereas organic sales improved 19%. This was backed by strong growth of New Mix in Mexico, Jack Daniel’s Tennessee Whiskey in the United Arab Emirates and Poland, and Jack Daniel’s Tennessee Apple in Brazil and Chile.
The developed international market reported sales growth of 3%, with a 2% decline in organic sales. The improvement can be attributed to Gin Mare and Diplomático in Italy, and the launch of Jack Daniel’s Tennessee Apple in South Korea. This was partly offset by lower volumes of Jack Daniel’s Tennessee Whiskey in Japan, following a significant inventory build in the second half of fiscal 2023.
Net sales in the Travel Retail channel advanced 3% on a reported basis and were flat on an organic basis. The increase was the result of gains in the super-premium American whiskey portfolio, led by growth in Woodford Reserve; the launch of Jack Daniel’s American Single Malta and Jack Daniel’s Single Barrel; and the acquisitions of Gin Mare and Diplomático. This was partly negated by soft volume in Jack Daniel’s Tennessee Whiskey and Jack Daniel’s Tennessee Honey.
The company’s overall sales in the United States declined 4% on a reported and 5% on an organic basis. The decline resulted from lower volumes due to the lapping of last year’s significant inventory build, offset by improved prices across the portfolio, led by Jack Daniel’s Tennessee Whiskey and the acquisition of Diplomático.
Category-Wise Performance
In the first half of fiscal 2024, net sales for whiskey products declined 2% year over year and 1% on an organic basis. The dip was led by declines in Old Forester and Woodford Reserve, and a slight decrease in the Jack Daniel’s Family of Brands.
The company continued to witness growth in the ready-to-drink (RTD) category, owing to consumer preference for convenience and flavor. Sales for New Mix improved 41% on a reported basis and 22% on an organic basis, driven by higher volumes and prices. Jack Daniel’s RTDs/Ready-to-Pours reported 2% sales growth on a reported and 1% growth on an organic basis, driven by the launch of the Jack Daniel’s & Coca-Cola RTD, partly offset by lower volumes of Jack Daniel’s & Cola due to the transition.
Brown-Forman’s tequila portfolio reported year-over-year sales growth of 2%, with a 1% decline on an organic basis. This was driven by sales growth for the el Jimador brand, offset by a decline in the Herradura brand. The el Jimador reported year-over-year sales growth of 8% on a reported basis and 7% on an organic basis, driven by higher pricing, mainly in the United States, as well as higher volumes in Colombia. Sales declined 5% on a reported and 9% on an organic basis for the Herradura brand, driven by lower volumes in the United States, offset by growth in Mexico.
The company’s newly acquired Gin Mare and Diplomático led significant growth in the rest of the portfolio, with reported sales growth of 104% and organic sales growth of 17%.
Our model predicted the tequila category to register sales growth of 2.2% in the fiscal second quarter. Meanwhile, other key categories, including wine, vodka, ready-to-drink and whiskey, were expected to report sales growth of 4.7%, 15.6%, 16.3% and 4.7%, respectively.
Balance Sheet & Cash Flow
The company ended second-quarter fiscal 2024 with cash and cash equivalents of $373 million, and a long-term debt of $2,654 million. Its total shareholders’ equity was $3,454 million. As of Oct 31, 2023, BF.B used about $61 million in cash for operating activities.
In second-quarter fiscal 2024, the company returned nearly $99 million to stockholders via dividends. It recently announced a quarterly dividend of 21.78 cents per share on its Class A and Class B shares, reflecting an increase of 6% from the prior dividend. The dividend is payable on Jan 2, 2024, to shareholders of record as of Dec 1. It has paid out regular quarterly dividends for 80 consecutive years and raised the dividend for 40 consecutive years.
Outlook
Management has lowered its view for fiscal 2024. It anticipates organic sales growth of 3-5% for fiscal 2024, driven by its strong portfolio of brands and pricing strategy. The company earlier predicted sales growth of 5-7% for fiscal 2024. It also remains optimistic about organic operating income growth.
Brown-Forman expects the organic operating income to increase 4-6%, compared with 6-8% growth mentioned earlier. Operating income is expected to benefit from organic net sales growth and lower supply-chain-disruption costs, offset by continued input cost inflation pressures. The effective tax rate is expected to be 21-23% for fiscal 2024. Capital expenditure is anticipated to be $250-$270 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 8.64% due to these changes.
VGM Scores
Currently, Brown-Forman B has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Brown-Forman B has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Brown-Forman B (BF.B) Up 2.4% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Brown-Forman B (BF.B - Free Report) . Shares have added about 2.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Brown-Forman B due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Brown-Forman Q2 Earnings In Line, View Cut
Brown-Forman has reported mixed second-quarter fiscal 2024 results, wherein sales missed the Zacks Consensus Estimate, while earnings meet the same. Meanwhile, sales and earnings improved year over year.
In the fiscal second quarter, earnings per share (EPS) of 50 cents rose 6% year over year and were in line with the Zacks Consensus Estimate.
Net sales of $1,107 million missed the Zacks Consensus Estimate of $1,156 million. The top line increased 1% year over year on a reported basis. On an organic basis, net sales were down 1% from the prior-year level.
In second-quarter fiscal 2024, Brown-Forman’s gross profit of $671 million increased 9% year over year on both reported and organic basis. The gross margin expanded 460 basis points (bps) to 60.6%. The gross margin was aided by an improved price/mix, lapping higher costs related to the supply-chain disruptions in the year-ago quarter and lower tariff-related expenses. This was partly negated by higher input costs and adverse currency rates.
SG&A expenses of $192 million rose 7% year over year and 6% on an organic basis. The increase stemmed from higher compensation and benefit-related expenses. Advertising expenses increased 16% year over year to $140 million for the fiscal second quarter. On an organic basis, advertising expenses increased 10%. Elevated advertising costs mainly resulted from the launch of Jack Daniel’s and Coca-Cola RTDs, increased investments in Jack Daniel’s Tennessee Whiskey, and the acquisition of Gin Mare and Diplomatico.
We expected total operating expenses to increase 11.3% year over year to $333.8 million in the fiscal second quarter, driven by a 2.9% rise in advertising expenses, and an 11.6% increase in selling, general and administrative expenses.
The operating income improved 8% year over year to $339 million on a reported basis due to an improved gross margin, offset by operating expense growth. The organic operating income rose 9%. The operating margin of 30.6% expanded 190 bps from the 28.7% reported in the year-ago quarter.
Our model predicted an operating margin of 29.3%, suggesting a 70-bps expansion from the year-ago quarter’s actual.
Market-Wise Performance
In the first half of fiscal 2024, net sales rose 2% on a reported basis and 1% on an organic basis. The improvement was mainly driven by growth in emerging and developed international markets, as well as the Travel Retail channel. However, sales growth was partly negated by a decline in the United States.
The emerging markets registered 17% net sales growth, whereas organic sales improved 19%. This was backed by strong growth of New Mix in Mexico, Jack Daniel’s Tennessee Whiskey in the United Arab Emirates and Poland, and Jack Daniel’s Tennessee Apple in Brazil and Chile.
The developed international market reported sales growth of 3%, with a 2% decline in organic sales. The improvement can be attributed to Gin Mare and Diplomático in Italy, and the launch of Jack Daniel’s Tennessee Apple in South Korea. This was partly offset by lower volumes of Jack Daniel’s Tennessee Whiskey in Japan, following a significant inventory build in the second half of fiscal 2023.
Net sales in the Travel Retail channel advanced 3% on a reported basis and were flat on an organic basis. The increase was the result of gains in the super-premium American whiskey portfolio, led by growth in Woodford Reserve; the launch of Jack Daniel’s American Single Malta and Jack Daniel’s Single Barrel; and the acquisitions of Gin Mare and Diplomático. This was partly negated by soft volume in Jack Daniel’s Tennessee Whiskey and Jack Daniel’s Tennessee Honey.
The company’s overall sales in the United States declined 4% on a reported and 5% on an organic basis. The decline resulted from lower volumes due to the lapping of last year’s significant inventory build, offset by improved prices across the portfolio, led by Jack Daniel’s Tennessee Whiskey and the acquisition of Diplomático.
Category-Wise Performance
In the first half of fiscal 2024, net sales for whiskey products declined 2% year over year and 1% on an organic basis. The dip was led by declines in Old Forester and Woodford Reserve, and a slight decrease in the Jack Daniel’s Family of Brands.
The company continued to witness growth in the ready-to-drink (RTD) category, owing to consumer preference for convenience and flavor. Sales for New Mix improved 41% on a reported basis and 22% on an organic basis, driven by higher volumes and prices. Jack Daniel’s RTDs/Ready-to-Pours reported 2% sales growth on a reported and 1% growth on an organic basis, driven by the launch of the Jack Daniel’s & Coca-Cola RTD, partly offset by lower volumes of Jack Daniel’s & Cola due to the transition.
Brown-Forman’s tequila portfolio reported year-over-year sales growth of 2%, with a 1% decline on an organic basis. This was driven by sales growth for the el Jimador brand, offset by a decline in the Herradura brand. The el Jimador reported year-over-year sales growth of 8% on a reported basis and 7% on an organic basis, driven by higher pricing, mainly in the United States, as well as higher volumes in Colombia. Sales declined 5% on a reported and 9% on an organic basis for the Herradura brand, driven by lower volumes in the United States, offset by growth in Mexico.
The company’s newly acquired Gin Mare and Diplomático led significant growth in the rest of the portfolio, with reported sales growth of 104% and organic sales growth of 17%.
Our model predicted the tequila category to register sales growth of 2.2% in the fiscal second quarter. Meanwhile, other key categories, including wine, vodka, ready-to-drink and whiskey, were expected to report sales growth of 4.7%, 15.6%, 16.3% and 4.7%, respectively.
Balance Sheet & Cash Flow
The company ended second-quarter fiscal 2024 with cash and cash equivalents of $373 million, and a long-term debt of $2,654 million. Its total shareholders’ equity was $3,454 million. As of Oct 31, 2023, BF.B used about $61 million in cash for operating activities.
In second-quarter fiscal 2024, the company returned nearly $99 million to stockholders via dividends. It recently announced a quarterly dividend of 21.78 cents per share on its Class A and Class B shares, reflecting an increase of 6% from the prior dividend. The dividend is payable on Jan 2, 2024, to shareholders of record as of Dec 1. It has paid out regular quarterly dividends for 80 consecutive years and raised the dividend for 40 consecutive years.
Outlook
Management has lowered its view for fiscal 2024. It anticipates organic sales growth of 3-5% for fiscal 2024, driven by its strong portfolio of brands and pricing strategy. The company earlier predicted sales growth of 5-7% for fiscal 2024. It also remains optimistic about organic operating income growth.
Brown-Forman expects the organic operating income to increase 4-6%, compared with 6-8% growth mentioned earlier. Operating income is expected to benefit from organic net sales growth and lower supply-chain-disruption costs, offset by continued input cost inflation pressures. The effective tax rate is expected to be 21-23% for fiscal 2024. Capital expenditure is anticipated to be $250-$270 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 8.64% due to these changes.
VGM Scores
Currently, Brown-Forman B has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Brown-Forman B has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.