Company Reports

We award a wide economic moat rating to Brown-Forman, based on the strong brand intangible assets and cost advantages associated with the spirits maker’s premium American whiskey portfolio that makes up two thirds of its overall sales.

We plan to lower our $63 fair value estimate for wide-moat Brown-Forman by a low-single-digit percentage after absorbing weak results in the first nine months of fiscal 2024. For the period, increases of 1% in sales and 2% in operating profits missed our estimates of 3% and 5% after adjusting for acquisitions and impairments. While we acknowledge the tough comparisons from the year-ago period, which saw sales up 8% due to channel inventory restocking, we believe a softer demand for high-end spirits in the United States and Europe is also to blame, consistent with updates from peers wide-moat Diageo and wide-moat Pernod Ricard. We are trimming our 2024 sales and adjusted operating profit estimates to square with management's guidance for flat and 1% growth, respectively. That said, we think the premiumization trends in spirits and Brown-Forman’s strong brand standing remain intact, and we maintain our 10-year projection for mid-single-digit sales compound annual growth rate and mid-30s average operating margins. The 7% selloff in the share price looks overdone, and we view the stock as attractive.

We award a wide economic moat rating to Brown-Forman, based on the strong brand intangible assets and cost advantages associated with the spirits maker’s premium American whiskey portfolio that makes up two thirds of its overall sales.

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.

We award a wide economic moat rating to Brown-Forman, based on the strong brand-driven intangible assets and cost advantages associated with the spirits maker’s premium American whiskey portfolio that makes up two thirds of its overall sales.

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.

We award a wide economic moat rating to Brown-Forman, based on the strong brand-driven intangible assets and cost advantages associated with the spirits maker’s premium American whiskey portfolio that makes up 70% of its overall sales.

We expect to maintain our $67 fair value estimate for wide-moat Brown-Forman after absorbing the firm’s fiscal 2023 (ended in April) results that edged our projections on the top line (7.5% versus 7.1%) thanks to the firm’s strong performance across the whiskey, tequila, and ready-to-drink beverage categories. While demand held up well, results came in a touch soft on the EPS line ($1.63 versus $1.72) given ongoing input cost pressure. Our 10-year forecasts for mid-single-digit annual revenue growth and mid-30s average operating margins remain in place. Shares trade in a range we’d consider fairly valued.

We award a wide economic moat rating to Brown-Forman, based on the strong brand-driven intangible assets and cost advantages associated with the spirits maker’s premium American whiskey portfolio that makes up 70% of its revenues.

We award a wide economic moat rating to Brown-Forman, based on the strong brand-driven intangible assets and cost advantages associated with the spirits maker’s premium American whiskey portfolio that makes up 70% of its revenues.

Despite cost inflation and recessionary concerns that may stall consumer spending, we believe wide-moat Brown-Forman remains well-equipped to navigate macro and competitive challenges. Brand prowess in its core American whiskey assets and tight distributor relationship should enable the distiller to continue riding the premiumization tailwinds in spirits consumption. Meanwhile, the firm has a keen eye for growth beyond its core competency, which, coupled with partnership with beverage giant wide-moat Coca Cola, stepped up research spending and strategic acquisitions, should bolster the premium distiller's long-term growth outlook.

Wide-moat Brown-Forman posted earnings in line with expectations, with $1.1 billion in sales and $0.21 in EPS beating FactSet consensus sales estimates of $1.02 billion but missing on profitability ($0.47). A measured pace of margin recapture remained front and center, with the combination of inflation, supply chain disruptions, and foreign exchange headwinds dragging gross margin down 170 basis points from the year-ago period to 58.4%. As we digest fiscal third-quarter results, we expect to lower our $73 fair value estimate by a low- to mid-single-digit percentage, with a tougher pricing environment and acquisition integration costs figuring to slow immediate-term margin normalization. Shares fell 3%-4% intraday, leaving them trading in a range we’d consider fairly valued.

Brown-Forman has established itself as a stalwart in matured spirits, an enclave of the distillation industry that we view as particularly attractive. In addition to brand recognition and distribution, companies in this industry benefit from scarcity value, the result of the consumer perception surrounding the aging of this type of alcohol and the pricing power that this begets. Against this industry backdrop, we believe Brown-Forman’s portfolio, anchored by the Jack Daniel’s brand, boasts some of the highest cachet globally.

We plan to lower our $78 fair value estimate on wide-moat Brown-Forman by a mid-single-digit percentage after digesting its October-ended fiscal 2023 second-quarter results, approximately in line with the decline in its shares on Dec. 7. The alcoholic beverage giant delivered 16% organic top-line growth in the quarter, but, due to tougher second-half comparisons, inflation pressuring margins, and normalizing downstream inventory levels, we expect a meaningful slowdown in second half-results.

Wide-moat Brown-Forman announced the planned acquisition of Dimplomatico Rum, a super-premium rum brand that should dovetail nicely with the remainder of the firm's spirits portfolio. Diplomatico generates the lion's share of its sales in the French, German, and U.S. markets, suggesting that the Western European market may be a renewed point of focus for the firm—particularly when considered in tandem with the recently announced acquisition of Spanish brand Gin Mare earlier in the quarter. We plan to maintain both our $78 fair value estimate and Exemplary capital allocation rating for the name.

Brown-Forman has established itself as a stalwart in matured spirits, an enclave of the distillation industry that we view as particularly attractive. In addition to brand recognition and distribution, companies in this industry benefit from scarcity value, the result of the consumer perception surrounding the aging of this type of alcohol and the pricing power that this begets. Against this industry backdrop, we believe Brown-Forman’s portfolio, anchored by the Jack Daniel’s brand, boasts some of the highest cachet globally.

Wide-moat Brown-Forman announced its acquisition (price undisclosed) of the ultra-premium Gin Mare and Gin Mare Capri brands from Vantguard and MG Destilerias, with the deal expected to close in the next 60 days. We view the move as concordant with the firm's competitive niche and strategic roadmap, with international expansion and premiumization underpinning the firm's strength over the past couple of years, in our view. We do not expect to change our $75 fair value estimate or our exemplary capital allocation rating as a result of the announcement.

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.

Brown-Forman has established itself as a stalwart in matured spirits, an enclave of the distillation industry that we view as particularly attractive. In addition to brand recognition and distribution, companies in this industry benefit from scarcity value, the result of the consumer perception surrounding the aging of this type of alcohol and the pricing power that this begets. Against this industry backdrop, we believe Brown-Forman’s portfolio, anchored by the Jack Daniel’s brand, boasts some of the highest cachet globally.

Wide-moat Brown-Forman reported fourth-quarter results in line with our expectations, seeing full-year sales of $3.9 billion and diluted EPS of $1.74 align with our $3.9 billion and $1.72 forecasts, respectively. Broad-based strength was encouraging, with the firm's Americas, developed international markets, emerging markets, and travel segments all contributing to 17% organic sales growth for the fiscal year. Perhaps more importantly, we didn't see meaningful evidence of consumer pressure materializing in the portfolio mix, with momentum across the gamut of premium, super-premium, and more quotidian price points. To this effect, the Jack Daniel's family generated impressive 17% annual growth despite catering to a lower-income clientele across most of its black label and ready-to-drink products. This reinforces our view that the firm's portfolio benefits from an attractive combination of relatively inelastic demand and premium pricing in one of the most attractive enclaves (distilled spirits) in the consumer cyclical space.