Brown-Forman Stock Rallies on Q2 Earnings & Sales Beat, Upbeat View

Brown-Forman Corporation (BF.B) has reported robust second-quarter fiscal 2025 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. The company’s sales declined year over year, while earnings per share (EPS) improved from the prior-year quarter.In the fiscal second quarter, EPS of 55 cents advanced 9% year over year and surpassed the Zacks Consensus Estimate of 51 cents.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Net sales of $1.1 billion declined 1% on a reported basis but beat the Zacks Consensus Estimate of $1.08 billion. On an organic basis, net sales improved 3% from the prior-year period. Sales declines were primarily led by reduced sales of Jack Daniel’s Tennessee Whiskey and the divestiture of Finlandia and Sonoma-Cutrer. The company experienced weaker sales trends across all geographic regions due to more favorable shipment timings in the previous year, which were linked to inventory replenishment and the implementation of its pricing strategy.Looking ahead, Brown-Forman expects to return to growth in fiscal 2025. Management remains confident that its performance will accelerate in the second half of fiscal 2025, fueled by a strong strategy, diverse portfolio, and extensive geographic reach.Shares of Brown-Forman rallied 11% in the pre-market trading session today, following the strong second-quarter fiscal 2025 performance and an optimistic view for fiscal 2025. This Zacks Rank #4 (Sell) company’s shares have lost 9.2% in the past three months compared with the alcohol beverage industry’s 8% decline.Image Source: Zacks Investment ResearchBrown-Forman’s Margins & ExpensesIn the fiscal second quarter, Brown-Forman’s gross profit of $646 million declined 4% year over year on a reported basis and was flat on an organic basis. The gross margin contracted 160 basis points to 59% due to the timing of input cost fluctuations and high inventory levels. The transition services agreements related to the divestitures of Finlandia and Sonoma-Cutrer also affected the gross margin.Selling, general and administrative (SG&A) expenses of $187 million declined 3% year over year on a reported basis and 1% on an organic basis. Reduced SG&A expenses were led by lower compensation-related expenses. Advertising expenses fell 9% year over year to $126 million. On an organic basis, advertising expenses were down 7%. The decrease in advertising expenses was due to the impacts of recently divested brands and lower spending compared with last year for super-premium Jack Daniel’s expressions and the promotions for Jack Daniel’s and Coca-Cola ready-to-drink (RTD).Operating income rose 1% year over year to $341 million on a reported basis. The organic operating income advanced 5%. The operating margin of 31.1% expanded 50 bps from the 30.6% reported in the year-ago quarter.Brown-Forman Stock Price, Consensus and EPS Surprise Brown-Forman Corporation price-consensus-eps-surprise-chart | Brown-Forman Corporation QuoteUnderstanding Brown-Forman’s Market PerformanceIn the first half of fiscal 2025, the company’s net sales declined 5% to $2 billion on a reported basis and remained flat on an organic basis.Net sales in the United States decreased 7% year over year on a reported basis and 3% on an organic basis in the first half due to lower volumes for Jack Daniel’s Tennessee Whiskey and Korbel California Champagnes. Additionally, the volumes were impacted by the Jack Daniel’s Country Cocktails (“JDCC”) business model change and the divestiture of Sonoma-Cutrer. However, the decline was partly negated by growth in Woodford Reserve and Old Forester, which continued to outperform the U.S. Whiskey category.In developed international markets, net sales decreased 5% year over year and 3% on an organic basis due to soft industry trends. However, industry trends improved sequentially. The sales decline was driven by reduced volumes of Jack Daniel’s family of brands, the absence of the Finlandia brand, and lower Glenglassaugh sales due to the lack of high-value cask transactions seen in the same period last year.Net sales in the emerging markets declined 3% on a reported basis and increased 6% on an organic basis. The decline was led by the Finlandia divestiture, adverse currency fluctuations, and reduced sales in the Tequila portfolio in Mexico. However, the growth of Jack Daniel’s family of brands in Türkiye and Brazil partially offset the decline.The Travel Retail channel saw net sales drop 5% on a reported basis and 3% on an organic basis due to reduced volumes for Jack Daniel’s super-premium expressions and Woodford Reserve. The Finlandia divestiture also impacted sales. This decline was partly negated by the growth of Jack Daniel’s Tennessee Whiskey and Diplomático.A Peak Into How BF.B’s Categories PerformedIn the first half of fiscal 2025, net sales for Whiskey products fell 1% year over year and were flat on an organic basis. The decline was primarily led by lower volumes of the other super-premium Jack Daniel’s expressions, The Glendronach and Glenglassaugh. However, this decline was partially offset by increased sales of Old Forester and Woodford Reserve in the United States.Net sales for the tequila portfolio slumped 17% year over year on both reported and organic basis. Sales for el Jimador declined 16% on both reported and organic basis, led by soft volumes in the United States and Mexico. Sales for the Herradura brand fell 14% on a reported and 13% on an organic basis on lower volumes in Mexico.The company witnessed a year-over-year sales decline of 6% and growth of 2% on an organic basis for the RTD category. Sales for New Mix were down 1% on a reported basis and improved 5% on an organic basis on negative currency impacts offset by market share gains. Jack Daniel’s RTDs/Ready-to-Pours reported a sales drop of 8% on a reported and improved 1% on an organic basis, led by the impacts of JDCC.The company’s rest of the portfolio’s sales declined 26% year over year and were flat on an organic basis. The decline was driven by the Finlandia and Sonoma-Cutrer divestitures and the lower volumes of Korbel California Champagnes in the United States.BF.B’s Financial Health SnapshotThe company ended second-quarter fiscal 2025 with cash and cash equivalents of $416 million and long-term debt of $2.4 billion. Its total shareholders’ equity was $3.7 billion. As of Oct. 31, 2024, BF.B had $129 million in cash from operating activities.What to Expect From Brown-Forman in Fiscal 2025?Brown-Forman expects to return to organic net sales and organic operating income growth in fiscal 2025, aided by gains in international markets and the benefit of normalizing inventory trends. However, it expects challenges from the global macroeconomic and geopolitical uncertainties to continue.In fiscal 2025, Brown-Forman projects organic net sales growth of 2-4%. The company also expects the organic operating income to increase 2-4%. The effective tax rate is expected to be 21-23%. Capital expenditure is anticipated to be $180-$190 million compared with $195-$205 million expected earlier.Solid Picks in BF.B’s Broader SectorWe have highlighted three better-ranked stocks from the Zacks Consumer Staples sector, namely The Vita Coco Company COCO, Zevia ZVIA and Freshpet FRPT.Vita Coco, which provides coconut water products under the Vita Coco brand name in the United States, Canada, Europe, the Middle East, Africa, and the Asia Pacific, currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.The Zacks Consensus Estimate for Vita Coco’s 2024 sales and EPS indicates growth of 3.5% and 29.7%, respectively, from the year-ago reported numbers. COCO has a trailing four-quarter earnings surprise of 17.6%, on average.Zevia is a beverage company that produces and sells various carbonated beverages in the United States and Canada. It currently carries a Zacks Rank #2.The consensus estimate for Zevia’s current 2024 EPS implies a growth of 29.3% from the year-ago reported number. ZVIA has a trailing four-quarter average earnings surprise of 21.7%.Freshpet is a pet food company. The company manufactures and markets natural fresh foods, refrigerated meals, and treats for dogs and cats in the United States and Canada. It currently carries a Zacks Rank of 2.The Zacks Consensus Estimate for Freshpet’s 2024 sales and EPS indicates growth of 27.3% and 228.6%, respectively, from the year-ago reported numbers. FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Brown-Forman Corporation (BF.B): Free Stock Analysis Report Vita Coco Company, Inc. (COCO): Free Stock Analysis Report Freshpet, Inc. (FRPT): Free Stock Analysis Report Zevia PBC (ZVIA): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks