Jack Daniel's parent Brown-Forman posts earnings miss, but stock rises as it backs guidance

By Ciara Linnane

Spirits company reports lower sales in all geographies, with consumers still cautious

Brown-Forman Corp., parent to alcohol brands including Jack Daniel's, posted weaker-than-expected fiscal first-quarter earnings on Thursday, as consumers continue to be wary of spending on nonessential goods.

But the stock (BF.A) (BF.B) rose 1% after the company backed its full fiscal 2025 guidance.

On the Brown-Forman's earnings call, Chief Executive Lawson Whiting reminded analysts that the company is expecting a year of two halves - with the second half expected to be stronger than the first.

That's because the first two quarters will be compared to strong shipments in the year-earlier period in certain emerging international markets, as retailers rebuilt inventories that were depleted during supply-chain snags. They will also lap shipments that occurred before planned price increases.

Whiting questioned the three trends that are mooted as behind slowing demand for alcohol - namely, competition from legal cannabis, the proliferation of the new class of weight-loss drugs that has people consuming fewer calories, and Gen Z's lack of interest in booze.

"We feel those are not the key drivers, that these are not structural changes, but it really comes down to consumer spending and consumer inventories," he said, according to a FactSet transcript.

The Louisville, Ky.-based company had net income of $195 million, or 41 cents a share, for the quarter ending July 31, down from $231 million, or 48 cents a share, in the year-earlier period. Sales fell 8% to $951 million.

The FactSet analyst consensus was for EPS of 45 cents and sales of $991 million.

Whiting said the consumer remained challenged given the cost environment, but the premiumization trend is intact.

Sales growth at Diplomático Rum, Old Forester and Woodford Reserve was more than offset by sales declines led by Jack Daniel's and its Finlandia divestiture.

Brown-Forman sold the Finlandia vodka brand to Coca-Cola HBC AG for $220 million last year.

Sales fell across all geographic regions, Whiting noted. Sales of whiskey products fell 6%, while sales for the tequila portfolio were down 23%. Sales of the El Jimador brand fell 26%, led by lower volumes in the U.S., Colombia and Mexico.

Sales of Herradura fell 15% led by lower volumes in Mexico, given the challenging economy there.

Sales at the ready-to-drink portfolio fell 12%, as New Mix's sales were down 11%, also due to lower volumes in Mexico.

Sales of Jack Daniel's ready-to-drink products fell 13%, as sales of Jack Daniel's Country Cocktails shrunk. That was after the company handed over production of the product to Pabst Brewing Co., which was already distributing it. The rest of the portfolio saw sales fall 18%.

By geography, sales in the U.S. fell 5%, while sales of developed international markets were down 9%. Sales in emerging markets were down 16%, while sales from the travel retail channel were down 11%.

But Brown-Forman was able to back its fiscal 2025 guidance and expects a return to organic sales growth and operating income, driven by gains in international markets and the benefit of normalizing inventory trends.

The company is expecting organic sales growth in the 2% to 4% range. Organic sales exclude currency impact and acquisitions. It expects operating income growth of 2% to 4%.

"We continue to believe that Jack Daniel's has a significant runway for long-term growth despite the recent short-term headwinds," said Whiting. "We continue to invest behind the brand and have strategies and plans in place to engage a new generation of legal drinking-age consumers while retaining our core consumers, including the Make It Count global campaign, the McLaren Formula 1 One sponsorship, and the Jack Daniel's and Coca-Cola RTD."

The stock was slightly lower premarket and has fallen 21% in the year to date, while the S&P 500 SPX has gained 17%.

-Ciara Linnane

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08-29-24 1315ET

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