Brown-Forman Corporation reported financial results for its first quarter of fiscal 2024, which ended July 31, 2023, with reported net sales increasing 3%1 to $1.0 billion (+2% on an organic basis2). In the quarter, reported operating income decreased 4% to $327 million (-6% on an organic basis) and diluted earnings per share decreased 7% to $0.48.
Brown-Forman’s President and Chief Executive Officer Lawson Whiting stated, “As anticipated, our first quarter growth was impacted by the difficult shipment comparison from fiscal 2023, when we rebuilt inventory impacted by prior glass supply challenges. We continue to be confident in the strength of our people, our brands, and our business, and reaffirm our full-year fiscal 2024 guidance of 5-7% organic net sales growth and 6-8% organic operating income growth.”
First Quarter of Fiscal 2024 Highlights
- Broad-based reported net sales growth was delivered across Emerging3 and Developed International3 markets and the Travel Retail3 channel. Reported net sales declined in the United States, reflecting an estimated net decrease in distributor inventories, partially due to cycling against a significant inventory rebuild during the same period last year.
- On a reported basis, portfolio growth was led by:
- The recently acquired Gin Mare and Diplomático brands collectively increased the company’s reported net sales by 2%,
- New Mix RTD, which delivered very strong reported net sales growth of 52% (+32% organic),
- el Jimador with reported net sales growth of 27% (+26% organic), and
- Jack Daniel’s Tennessee Apple with double-digit reported net sales growth of 49% (+52% organic).
- Reported gross margin expanded by 90 basis points.
- Significant brand investment supporting the existing portfolio, Jack Daniel’s & Coca-Cola RTD launch, and the recent acquisitions of Gin Mare and Diplomático increased reported advertising expense 19% (+14% organic).
First Quarter of Fiscal 2024 Brand Results
- Reported net sales for Whiskey3 products declined 1% (flat organic) led by Woodford Reserve and Gentleman Jack due to an estimated net decrease in distributor inventories, partially offset by the growth of Jack Daniel’s Tennessee Apple and Jack Daniel’s super-premium expressions such as Jack Daniel’s Sinatra and Jack Daniel’s Bonded.
- While reported net sales of Jack Daniel’s Tennessee Whiskey were flat, the brand led the company’s organic growth (+2%) even as an estimated net decrease in distributor inventories in the United States negatively impacted it.Ready-to-Drink3 (RTD) growth was driven by consumer preference for convenience and flavor. New Mix’s reported net sales increased 52% (+32% organic), propelled by higher volumes and prices and the positive effect of foreign exchange.
- Reported net sales of Jack Daniel’s RTD/RTP portfolio were flat (flat organic) due to lower volumes of Jack Daniel’s & Cola as we launched the Jack Daniel’s & Coca-Cola RTD.Reported net sales for the tequila portfolio increased by 15% (+12% organic).
- El Jimador fueled the growth with reported net sales of 27% (+26% organic) driven by higher prices, particularly in the United States, and higher volumes in Colombia. Herradura increased reported net sales by 1% (-3% organic) as the positive effect of foreign exchange was largely offset by lower volumes in the United States, reflecting an estimated net decrease in distributor inventories.
- Gin Mare and Diplomático drove the significant increase in Rest of Portfolio’s3 reported net sales growth of 97% (+5% organic).
First Quarter of Fiscal 2024 Market Results
- Emerging markets grew reported net sales by 27% (+32% organic), reflecting the very strong growth of New Mix in Mexico and Jack Daniel’s Tennessee Whiskey in the United Arab Emirates and Poland.
- Developed International3 markets’ reported net sales increased by 5% (flat organic) fueled by Gin Mare and Diplomático in Italy, along with the launch of Jack Daniel’s Tennessee Apple in South Korea. Growth was partially offset by lower volumes of Jack Daniel’s RTDs in the United Kingdom and Australia.
- The Travel Retail3channel sustained strong growth with reported net sales increasing 13% (+9% organic), driven primarily by higher volumes of Woodford Reserve and Jack Daniel’s super-premium expressions such as Jack Daniel’s Single Barrel Tennessee Whiskey.
- Reported net sales in the United States decreased 8% (-9% organic). The decline was driven by lower volumes reflecting an estimated net decrease in distributor inventories, partially offset by higher prices across the portfolio led by Jack Daniel’s Tennessee Whiskey. The estimated net decrease in distributor inventories was partially due to cycling against a significant inventory rebuild last year as we continued to recover from supply chain disruptions.
First Quarter of Fiscal 2024 Other P&L Items
- Reported gross profit increased 5% (+5% organic). Gross margin expanded 90 basis points to 62.7%, driven by favorable price/mix, lower supply chain disruption-related costs and lower tariff-related costs, partially offset by higher input costs and the negative effect of foreign exchange.
- Reported advertising expense grew 19% (+14% organic) driven by the launch of Jack Daniel’s & Coca-Cola RTD, increased investment in Jack Daniel’s Tennessee Whiskey, and the acquisitions of Gin Mare and Diplomático. Reported selling, general, and administrative expenses increased 14% (+12% organic), largely driven by higher compensation-related expenses.
- The company’s reported operating income decreased by 4% (-6% organic) due to the timing of higher operating expenses, partially offset by gross margin expansion.
- Diluted earnings per share declined by $0.04, driven primarily by decreased reported operating income and higher interest expense.
Fiscal 2024 Outlook
While we remain optimistic about our prospects for growth of organic net sales and operating income in fiscal 2024, we believe trends will normalize after two consecutive years of double-digit organic net sales growth. Accordingly, we reiterate our guidance and expect the following in fiscal 2024:
- Reflecting the strength of our portfolio of brands, our pricing strategy, and strong consumer demand, we expect organic net sales growth in the 5% to 7% range.
- Based on the above organic net sales growth outlook and our expectation that lower supply chain disruption costs will partially offset continued input cost pressures, we anticipate organic operating income growth in the 6% to 8% range.
- We expect our fiscal 2024 effective tax rate to be approximately 21% to 23%.
- Capital expenditures are planned to range from $250 to $270 million.
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