Brown-Forman B shares down 5.6% since last earnings report

Brown-Forman B shares have declined approximately 5.6% over the past month, underperforming the S&P 500 following the company's first-quarter fiscal 2027 earnings report. The stock's recent weakness contrasts with a broader upward trend in analyst estimates for the company.

In its latest results, Brown-Forman reported first-quarter fiscal 2027 earnings of 38 cents per share, a 6% year-over-year increase that met the Zacks Consensus Estimate. However, net sales of $911 million fell 1% year-over-year, missing the consensus estimate of $921.2 million. On an organic basis, net sales also dipped 1%. The decline in the top line was driven by the end of the Korbel relationship, lower used barrel sales, and weakness in tequila. These headwinds were partly offset by a 20% rise in Ready-to-Drink sales, led by a 48% jump in the New Mix brand.

Gross profit decreased 1% year-over-year to $549 million, though it rose 1% organically. The gross margin expanded by 40 basis points to 60.2%, reflecting lower costs and the conclusion of the Korbel partnership, which was partially offset by unfavorable foreign exchange and price/mix effects. Advertising expenses fell 5% year-over-year to $114 million, as reduced spending on Jack Daniel's Tennessee Whiskey outweighed increased investment in the international launch of Jack Daniel's Tennessee Blackberry. Selling, general and administrative expenses rose 4% to $185 million due to targeted organizational realignment costs.

Operating income declined 3% year-over-year to $252 million on a reported basis, although it increased 4% organically. The operating margin contracted by 50 basis points to 27.7%. Net income grew 3% year-over-year to $176 million, supported by lower non-operating post-retirement expenses and prior-year share repurchases.

By segment, whiskey net sales were flat on both reported and organic bases. Jack Daniel's Tennessee Whiskey remained flat, while declines in Tennessee Honey and Gentleman Jack offset gains from the international rollout of Tennessee Blackberry. Ready-to-Drink net sales increased 20% reported and 11% organically, with New Mix surging 48% reported and 36% organically. Tequila sales fell 12%, with Herradura down 17% and el Jimador down 10%. Sales for the rest of the portfolio declined 35%, and non-branded and bulk sales dropped 61%.

Geographically, U.S. net sales declined 3% but were flat organically, weighed down by the end of the Korbel relationship and distributor inventory adjustments. Developed International sales fell 6% reported and 8% organically due to lower Jack Daniel's volumes in Germany, France, and Spain. Emerging-market sales increased 11% reported and 9% organically, supported by growth in Mexico. Travel Retail sales slipped by 1%.

Cash provided by operating activities increased by $13 million year-over-year to $173 million, while free cash flow rose by $32 million to $161 million. The company ended the quarter with $301 million in cash and cash equivalents against $2.08 billion in long-term debt. Brown-Forman repaid the principal amount of its 1.20% senior notes at maturity and returned $106 million to stockholders through dividends.

Management expects a challenging operating environment for fiscal 2027 due to macroeconomic pressure and geopolitical instability, particularly in developed markets. The company reaffirmed its outlook for organic net sales to be approximately flat and organic operating income to decline between 3% and 5%. It projects an effective tax rate of 20% to 22% and capital expenditure of $60-$70 million.

Despite the stock's recent drop, analyst estimates have trended upward over the past month. Brown-Forman B currently holds a Zacks Rank #3 (Hold), with an aggregate VGM Score of D.