Brown-Forman maintained its annual forecast even as it weathers flat whiskey sales and prepares for the impact of tariffs, the company announced in its Q3 FY25 financials release and earnings call.
With 25% tariffs on imports from North American trading partners, and potential retaliatory tariffs in the EU, the company has been “executing on multiple risk mitigation plans” for this fiscal year and said any impact is included in its yearly guidance.
Here’s the overview:
- The whiskey giant reported a sales dip of -3% (+6% organic) in FY25 Q3, compared to the same prior-year period, to $1 billion.
- For the first nine months of the fiscal year, Brown-Forman reported net sales decreased -4% and gross profit declined -6%, mainly due to the sale of its Sonoma-Cutrer and Finlandia brands. The company, however, earned a $78 million gain on the sale of its investment in the Duckhorn Portfolio. The divestment of the wine and vodka brands are part of an ongoing offloading of lower-performing brands by major spirit companies.
- Banking on gains in international markets and the benefit of normalizing distributor inventory trends, the company reiterated expectations for organic net sales growth in the +2% to +4% range in FY 2025.
Jack Daniel’s: “It’s Been A Very Competitive Few Years”
Whiskey sales were flat in the first nine months of the fiscal year but one of Brown-Forman’s high-end whiskey brands, Woodford Reserve, and an improvement in Jack Daniel’s sales trends helped the company reverse downward trends in the category.
The Jack Daniel’s family of brands has made sequential improvements year-to-date (-1% reported, +2% organic), but has found the most growth in developing markets. Super-premium Jack Daniel’s expressions, including Jack Daniel’s Single Barrel and other special releases, dipped following a strong prior-year comparison partially due to a number of product launches.
“It’s been a very competitive few years and it’s been challenging,” said Lawson Whiting, president and CEO.
The company has aimed to increase the buzz around Jack Daniel’s by upping its mix of spend on music activations and Formula One campaigns. That includes more investment in all major markets, and a new team of brand ambassadors called the “Jack Pack” in key markets across the U.S.
“The trends, particularly in the U.S., have not turned like we would have wanted by now, but we continue to get really nice growth out of our emerging markets, which is really pulling the company along and pulling the brand along,” Whiting said.
The Jack Daniel’s family of ready-to-drink (RTD) sales also declined -7% (+3% organic) driven by the impact of the Jack Daniel’s Country Cocktails business model change, according to the company. In 2020, Brown-Forman entered into a partnership with the Pabst Brewing Company for the supply, sales, and distribution of Jack Daniel’s Country Cocktails in the U.S. while Brown-Forman continued to produce certain products. In 2023, the production fully transitioned to Pabst Brewing Company.
Music activations in the spring and summer will be a part of leveraging more trial for the company’s other signature RTD, Jack & Coke, added Whiting. A variety pack featuring the original product alongside Cherry and Vanilla flavors is expected in stores in the upcoming weeks.
While much of the company’s RTD focus has been outside of the U.S., the upcoming shift in distribution from Republic National Distribution Company to Reyes Beverage Group in the country’s largest spirits market may signal increased attention to stateside business.
“Our decision to expand our relationship with Reyes in California is a bold move that reinforces we are thoughtfully evaluating all aspects of our business in what continues to be a challenging external environment,” Whiting said.
The group’s RTD bright spot sits outside of the Jack Daniel’s family: El Jimador’s New Mix continued its growth (+2%) and gained share in Mexico. A new Tamarind flavor will debut in the spring.
Tequila Portfolio Struggles; El Jimador To Jump Price Tiers
Tequila sales continued to face challenges, falling -15%. Both El Jimador’s and Herradura’s net sales declined -13% (-11% organic), with El Jimador’s declines driven by lower volumes in the U.S. and Mexico, and partially offset by higher prices in the U.S., while Herradura’s dip was led by lower volumes in Mexico.
In an effort to boost the agave portfolio, El Jimador, which represents the lower-end of the two brands, will move into the faster growing segment of $20 to $30 tequila. The company will be relaunching the brand with new packaging, communication, as well as new innovations, but did not specify the timeline.
Tequila companies were expected to find some relief in the decreasing cost of agave, but Brown-Forman expects those benefits to be more than offset by the impact of inflation on input costs and lower production volumes. However, the company should still benefit some from lower agave prices, but based on the portfolio’s performance, it will take longer than expected to work through higher-cost inventory.
Tariffs “A Big Disadvantage”
Like other international spirits groups, Brown-Forman faces tariffs on multiple fronts: the 25% tariff on imports from Mexico, as well as potential return of a retaliatory European Union tariff imposed on American whiskeys, which will snap back to 50% if there is no agreement between the U.S. and EU in an ongoing steel and aluminum tariff dispute by March 31.
“With the situation as fluid as it is, we can say that any impact on any type of tariff would be included in our fiscal year 2025 guidance, and we just believe it’s prudent to wait until June to share any other thoughts on the potential impact going forward,” said Leanne Cunningham, executive vice president and chief financial officer.
But Whiting did add that a return of the EU tariffs would be “a big disadvantage for us,” and that the company, alongside its competitors, is advocating for reciprocal “zero-for-zero tariffs.”
Retaliatory moves are already underway in Canada, where provinces have removed American spirits off the shelves. Whiting described the response as “tough” but added that the country represents only 1% of sales for Brown-Forman.
Mexico, which represented 7% of Brown-Forman’s 2024 sales, has not yet announced its response. A “challenging economic environment” in the Mexican market has already slowed sales, but Jack Daniel’s brands and the RTD portfolio remain bright spots in the country.