Brown-Forman's business in the US is improving "slowly", which has, in part, boosted the group's outlook on its profits, outgoing CEO Lawson Whiting has said.
Alongside the publication of its first-quarter results yesterday (3 September), the Jack Daniel's maker reaffirmed its full-year outlook, which includes a forecast for a 3-5% decline in organic operating income.
However, CFO Jim Peters said Brown-Forman had "increased confidence that results will trend toward the more favourable end of the range", based on its first-quarter figures and "trends we're seeing across the business", he said.
Prodded on Brown-Forman's underlying performance in the US, Whiting, who is soon to retire from the group, said: "I think the US business in aggregate is improving, slowly."
He said the business "bottomed out" around December to January. Pointing to NABCA and Nielsen data, he also indicated there were signs of "improvement".
Later in the call, Whiting said: "If the TDS [total distilled spirits] in the US continues to improve bit by bit, and it has - it has been pretty steady over the last six, eight months... I think that helps the confidence".
For the three months ended 31 July, Bronw-Forman's total net sales were down 1% at $911m, attributed to the end of its distribution and marketing agreement with Korbel Champagne Cellars last year and a drop in sales of used barrels and Tequila.
Net sales in the US declined 3% on a reported basis and were flat organically, driven in part by the end of the Korbel tie-up as well as "an estimated net decrease in distributor inventories".
Gross profit was also down 1% in the period at $549m, while operating income declined 3% to $252m. Net income was up 3% in the quarter to $176m.
Peters said that the group's "actions" to offset costs were "delivering probably at the higher end of the range of what we expect and we are seeing some of those results come sooner".
He added: "While we do expect our gross margins to feel pressure throughout the year due to the timing of how some of the whiskey flows out and all that, we still are actually seeing - what I would say is based on our own actions - some more favourable things within the overall cost of goods environment."
Barrel sales, Tequila and US whiskey
Whiting also told analysts he expected declining barrel sales to be less of a pressure on the results of the business in the future.
Brown-Forman has seen barrel sales drop from over $100m in its 2024 financial year to around $30m last year, with the expectation the business will also see "a pretty significant" drop for that measure again in its 2027 fiscal year.
"We really have not expanded upon it but it has been a huge headwind for us," Whiting told analysts. "Having said all that, it cannot get any lower. There is just not that much farther to go. It will be less of a headwind going forward, which is starting to give us a little more confidence, too, in the outlook."
On the call, Whiting also spoke about the pricing environment for Tequila, a category that has faced pressure from consumers trading down.
Brown-Forman's net sales for its Tequila brands declined 13% organically in its first quarter. Net sales of the Herradura brand were down 18% on an organic basis due to lower US volumes and "net pricing" in Mexico. Organic net sales of El Jimador were also down in the US by 11% due to "lower net pricing" in the market.
Whiting said the business was starting "to see encouraging signs, particularly with El Jimador in the US, where Nielsen takeaway trends have improved meaningfully".
For the Herradura brand, which is more expensive than El Jimador, "it is difficult", Whiting added but stressed the business was "about to unveil a whole lot of new things for that brand" and that it expects "it will improve from here".
Reflecting on US whiskey, Whiting also noted that "takeaway in the US has not really improved and it has not improved for many, many of the largest brands in the US."
However, he stressed US whiskey is still "the single strongest category". Referring to Nielsen data, he said Tequila had dropped "several points behind" American whiskey.
"Some sell-side folks and a lot of trade people... they are just less enthusiastic about the category. Look, there are cost challenges, and everyone is dealing with that, and everyone has got some inventory challenges, but consumer demand is still there.
"The demise of the category has been a bit exaggerated," Whiting added, noted Brown-Forman was still seeing "huge demand" around "super" and "ultra-premium tastings" at its distilleries.
"US business is improving "slowly", Brown-Forman CEO says" was originally created and published by Just Drinks , a GlobalData owned brand.
