Strong Demand and Distributor Inventory Improvement Elevate Brown-Forman's Fiscal Q1 Results

Wide-moat Brown-Forman rang in its fiscal 2023 new year with strong first-quarter results that included organic top-line growth of 17%, fueled by brand resilience across all geographic subcategories. The travel retail segment (3% of sales) exhibited 85% growth. This still lags prepandemic levels, but we remain optimistic that growth trends will persist on normalizing international travel, particularly in markets where the return to normal has been slower than in the U.S. market. We also expect the ongoing return of on-trade volume to provide a near-term sales tailwind. To this effect, Brown-Forman’s broad product portfolio’s organic growth was led by Woodford Reserve (up 39%), Jack Daniel’s Tennessee Whiskey (up 21%), and ready-to-drink offerings (up 21%), mainly attributable to replenishment in distributor inventories and strong consumer demand despite ongoing inflationary pressure. With the firm maintaining its full-year guidance for mid-single-digit net sales and organic operating income growth (consistent with our 6% top-line and 8% operating income growth forecast), we plan to leave our annual assumptions largely unchanged. We expect to raise our $75 fair value estimate by a low-single-digit percentage, consistent with the time value of money.