Brown-Forman Earnings: Channel Inventory Shift a Near-Term Headwind, but Premium Branding Intact

We plan to maintain our $68 fair value estimate for wide-moat Brown-Forman after absorbing the firm’s first-quarter results and view shares as fairly valued. While the 3% sales growth and 7% EPS decline missed our forecasts of increases of 4% and 5%, respectively, we attribute the soft performance to temporary factors, including distributor inventory normalization and high ad spending tied to Jack & Coke’s global launch. We view the firm’s targets for 2024 sales and operating profits to grow 5%-7% and 6%-8%, respectively, as attainable. Our 10-year forecasts remain in place, calling for mid-single-digit annual sales growth and mid-30s operating margins on average.