Brown-Forman Earnings: Soft Liquor Demand Dims Near-Term Outlook but Premium Brand Standing Intact

We plan to trim our $68 fair value estimate for wide-moat Brown-Forman by a low-single-digit percentage after absorbing soft results in the first six months of fiscal 2024 and a tempered outlook for the full year. First-half sales growth of 2% and EPS contraction of 1% missed our estimates for increases of 4% and 9%, respectively. While a tough comparison in the year-ago period due to distributor restocking following supply disruptions is partly to blame, we also attribute the weakness to softening demand for high-end spirits amid consumer belt-tightening in North America and Europe, consistent with trading updates from the world’s largest spirits maker, wide-moat Diageo. As such, we are trimming our fiscal 2024 sales and EPS growth forecasts to 4% and 7%, respectively, from 7% and 10%, but we continue to see 5% sales growth and mid-30s average operating margins as achievable over the 10-year forecast period. Shares fell 10% on the report, which we think is overdone, and we see an attractive risk/reward mix in the stock.