Brown-Forman Sales Rise 4% in Quarter, Net Plunges 61%

Brown-Forman Corp. reports net sales rose 4% to $1.1 billion (up 5% on an organic basis) from the like year-earlier quarter;  but earnings plunged 61% to $100 million from $259 million.

Brown-Forman stepped up advertising in the quarter, with year-to-date advertising expense up 20% (24% organic) as it increased its investments to support Jack Daniel’s Tennessee Whiskey, Woodford Reserve, the launch of Jack Daniel’s Bonded, and Herradura in the United States.

The company also did a non-cash impairment charge of $96 million for the Finlandia brand name and recorded higher operating expenses and post-closing costs in connection with the acquisitions of Diplomatico and Gin Mare.

As trends began to normalize, reported net sales in the U.S. grew 4% (+4% organic). This growth was driven by higher volumes of Woodford Reserve, partially reflecting an estimated net increase in distributor inventories, and higher prices across the portfolio led by the Jack Daniel’s family of brands. Lower volumes of Jack Daniel’s Tennessee Whiskey and Korbel California Champagne partially offset the growth due to an estimated net decrease in distributor inventories.

Lawson Whiting, president/CEO, said: “Even as trends begin to normalize, we believe our business will remain robust given the premiumization of our portfolio, the health of our brands, and the resolve of our people. We also believe our long-term perspective enables us to navigate the changes of our world and drive consistent, reliable growth year after year.”

The company delivered broad-based reported net sales growth across all geographic clusters and the Travel Retail channel driven by strong consumer demand and the continued rebuilding of distributor inventories.

Through the end of the third quarter in Brown-Forman's fiscal year, here is how its brands performed:

• The Jack Daniel’s family of brands’ reported net sales growth of 5% (+11% organic) driven by Jack Daniel’s Tennessee Whiskey in international markets and the Travel Retail channel. Higher pricing and an estimated net increase in distributor inventories in certain emerging and developed international markets positively impacted reported net sales, partially offset by lower volumes in the U.S. due in part to an estimated net decrease in distributor inventories. Continued consumer desire for convenience and flavor drove gains in Jack Daniel’s RTDs, Jack Daniel’s Tennessee Fire, and Jack Daniel’s Tennessee Honey. In addition, reported net sales also benefited from the launch of the brand’s new Jack Daniel’s Bonded.

• Premium bourbons, propelled by very strong double-digit net sales growth from Woodford Reserve and Old Forester, delivered 33% reported net sales growth (+34% organic) driven by stronger consumer demand in the United States, partially due to the estimated net increase in distributor inventories.

• Ready-to-Drinks (RTDs) growth was driven by consumer preference for convenience and flavor. New Mix gained market share in Mexico as reported net sales grew 45% (+41% organic), fueled by higher volumes and prices. Jack Daniel’s RTDs/Ready-to-Pours (RTPs) grew reported net sales 6% (+10% organic) led by Australia and Germany.

• Reported net sales for the tequila portfolio increased 12% (+11% organic) with el Jimador and Herradura both delivering double-digit reported net sales growth. el Jimador grew reported net sales 18% (+19% organic) led by growth in the United States and Mexico. Herradura increased reported net sales 10% (+9% organic) driven by volumetric growth in the United States, partially due to an estimated net increase in distributor inventories, and higher pricing in Mexico.

• Reported gross margin contracted 1.7% driven by inflation, supply chain disruption costs, and foreign exchange, partially offset by favorable price/mix and the removal of tariffs.
• Reported advertising expense increased by 20% (+24% organic).

Looking ahead, Brown-Forman said it anticipates "strong growth in fiscal 2023 despite global macroeconomic volatility and geopolitical uncertainties. The rebuilding of finished goods inventories, due to the easing of supply chain constraints, positively impacted results during the first nine months of fiscal 2023. "For the full year, the effect of the estimated net change in distributor inventories could range from no impact to a moderate unfavorable impact on results as the company laps significant inventory rebuilding during the fourth quarter of fiscal 2022. Accordingly, the company updates guidance for fiscal 2023 and expects the following:

• "We now expect organic net sales growth in the 8% to 10% range.

• "We continue to anticipate high-single digit organic operating income growth."