Brown-Forman Reports Decline in Net Sales and Operating Income for Six Months Ended October 31, 2024

Brown-Forman Corporation reported its financial results for the six months ended October 31, 2024, revealing a decline in net sales and operating income compared to the previous fiscal period. The company generated net sales of $2.0 billion, a decrease of 5% from $2.1 billion in the same period last year. This decline was attributed to several factors, including the negative impact of divestitures, lower volumes, adverse foreign exchange effects, and the transition of the Jack Daniel's Country Cocktails business model. Gross profit also fell to $1.2 billion, down 8% from the prior year, with gross margin decreasing to 59.2% from 61.6%.

In terms of profitability, Brown-Forman's operating income for the six months was $622 million, a 7% decrease from $666 million in the previous year. The decline in operating income was primarily driven by fluctuations in input costs, high inventory levels, and the impact of divestitures, which included the sale of the Finlandia vodka and Sonoma-Cutrer wine businesses. Despite these challenges, the company reported diluted earnings per share of $0.96, a slight decrease of 3% from $0.98 in the same period last year, benefiting from a lower effective tax rate.

The company has also made strategic moves, including the divestiture of its Finlandia vodka business for $196 million and the Sonoma-Cutrer wine business, which resulted in a 21.4% ownership stake in The Duckhorn Portfolio. These divestitures are expected to impact future sales and operating income negatively, as indicated in the filing. Additionally, Brown-Forman has entered into transition services agreements related to these divestitures, which have further affected gross margins.

Operationally, the company faced challenges across various geographic markets, with net sales declines reported in the United States, developed international markets, and emerging markets. Notably, net sales in the U.S. fell by 7%, driven by lower volumes of key brands such as Jack Daniel's and Korbel California Champagnes. However, there were positive contributions from brands like Woodford Reserve and Old Forester. The company also reported a significant increase in non-branded and bulk sales, primarily due to higher prices for used barrels.

Looking ahead, Brown-Forman anticipates a return to growth in fiscal 2025, projecting organic net sales growth in the range of 2% to 4%. The company expects to benefit from gains in international markets and a normalization of inventory trends, although it acknowledges that global macroeconomic and geopolitical uncertainties may continue to pose challenges. The effective tax rate is projected to remain between 21% and 23%, with capital expenditures estimated at $180 to $190 million.