Brown-Forman lowered its full-year net sales growth expectations by 2% in its second quarter earnings report, citing a “challenging operating environment” amid “evolving global macroeconomic conditions.”
The maker of Jack Daniels, Woodford Reserve and Herradura tequila reported net sales of $1.1 billion on Wednesday, a muted 1% improvement compared to the same quarter 2023. Operating income increased 8% to $339 million with gross margins over 60%, rising about 4% YoY.
Yet, Brown-Forman’s sales gains were offset by volume declines. Brown-Forman president and CEO Lawson Whiting conceded that the “significant inventory rebuild” experienced in the first half of last fiscal year continues to drag on earnings.
Leadership expressed confidence that as inventory normalizes the company will increase margins relying on the growing interest in RTD cocktails to buoy sales growth.
The company is optimistic that its partnership with The Coca-Cola Company on the Jack and Coke RTD will prove fruitful in the second half of the year. Despite its efforts to premiumize its portfolio, especially its Jack Daniels brand, whiskey sales were 2% in the first half of 2024 compared to 13% increase in the same period last year. The Jack Daniels family of brands was down 1% and Jack Daniel’s Tennessee Whiskey was down 4% in the first six months of 2024.
Net sales growth was down 4% across categories in the U.S.
The spirits house has made some key moves in the last year to both diversify its offerings and divest risk.
In June, the company announced it was selling Finlandia Vodka to Coca-Cola Hellenic Bottling Company (HBC) for $220 million. Brown-Forman followed that with the acquisition of rum brand Diplomático in October and Gin Mare in November broadening its reach into growing, premium liquor categories.
Most recently, Brown-Forman announced it was selling its Sonoma-Cutrer Vineyards wine group to The Duckhorn Portfolio for $50 million and a 21.5% stake in Duckhorn.
The divestiture represents a “value generating relationship for Brown Forman and offers the benefit of allowing us the opportunity to continue to participate in the premium and ultra premium wine category” with less of the day-to-day management responsibilities, Whiting said during the call.
Despite maintaining an optimistic air about the lowering of FY2024 forecast – CFO Leanne Cunningham called it a “tempering of our expectations” – the “cautious” approach to inflation and “current macro economic volatility” did not seem to temper some analysts’ interpretations of the report.
Goldman Sachs analysts were “broadly disappointed” with the results reflected in both the top and bottom line numbers, according to an equity research report.
“Management’s cautious tone and the pressures on whiskey and tequila categories raises questions about the achievability of FY24 guidance (even at now lowered levels), as it implies organic topline growth will accelerate in [the second half of the year] despite slowing consumer demand for the US spirits category.”