Brown-Forman(BF_A) - 2025 Q2 - Quarterly Results

Financial Performance - Second quarter reported net sales decreased 1% to $1.1 billion, with a 3% increase on an organic basis compared to the prior-year period[1] - For the first half of fiscal 2025, reported net sales decreased 5% to$ 2.0 billion, remaining flat on an organic basis[2] - First half reported operating income decreased 7% to $622 million, with a 3% decrease on an organic basis[2] - Diluted earnings per share for the first half decreased 3% to$ 0.96[2] - Gross profit declined 8% to $1.2 billion, with a gross margin contraction of 240 basis points to 59.2%[5][14] - Net sales for the Tequila portfolio declined 17% on an organic basis, primarily due to lower volumes in the United States and Mexico[7] - Net sales for 2023 were$ 1,107 million, a decrease of 1% compared to 2024's projected $1,095 million[28] - Gross profit for 2023 was$ 671 million, down 4% from 2024's projected $646 million[28] - Net income increased by 7% from$ 242 million in 2023 to $258 million in 2024[28] - Earnings per share (diluted) rose by 9% from$ 0.50 in 2023 to $0.55 in 2024[28] - The company reported a 5% decline in net sales for the six months ended October 31, 2024, compared to the same period in 2023[30] - Total portfolio depletions decreased by 5% and shipments decreased by 2% compared to the prior year period[39] - Whiskey category depletions were 10.4 million, down 4%, with net sales down 1%[39] - Ready-to-drink segment depletions were 10.3 million, down 4%, with net sales down 6%[39] Future Outlook - The company anticipates organic net sales growth in the range of 2% to 4% for fiscal 2025[20] - The company expects a return to growth in fiscal 2025, driven by gains in international markets and normalizing inventory trends[20] - The effective tax rate is expected to be in the range of approximately 21% to 23%[21] Dividends and Tax - The Board of Directors approved a 4% increase in the quarterly cash dividend to$ 0.2265 per share[18] - The effective tax rate for 2023 was 22.0%, projected to decrease to 17.6% in 2024[28] - A $13 million franchise tax refund was recognized in the first quarter of fiscal 2025 due to a change in franchise tax calculation methodology in Tennessee, retroactively applied to fiscal 2020 through fiscal 2023[57] Market Trends and Strategies - Emerging markets saw a 6% organic net sales increase, while developed international markets experienced a 5% decline[41] - The company reported a 39% increase in non-branded and bulk sales, with a 2% organic growth[41] - The company plans to continue focusing on market expansion and new product development strategies[39] - Top developed international markets include Germany, Australia, the UK, France, Canada, and Spain, while top emerging markets are Mexico, Poland, and Brazil[63] Inventory and Sales Metrics - Estimated net change in distributor inventories for the United States was 3%, while travel retail saw a decrease of 1%[43] - The company recognized a pre-tax gain of$ 175 million from the sale of the Sonoma-Cutrer wine business[51] - The company reported a 3% increase in net sales, cost of sales, and gross profit due to inventory changes[43] - Organic net sales decreased by 3% in the United States, with a 2% increase from acquisitions and divestitures[41] - Depletions are used to measure volume more closely reflecting consumer demand than shipments to distributors[75] - Consumer takeaway data, provided by external parties, serves as a leading indicator of consumer demand trends[77] - The estimated net change in distributor inventories is calculated to understand the impact of inventory changes on organic trends[79] Advertising and Expenses - Advertising expenses decreased by 9% from $140 million in 2023 to$ 126 million in 2024[28] Non-GAAP Measures - The company uses non-GAAP measures like "organic change" to assess performance consistently, compare with competitors, and communicate financial performance, excluding items like foreign exchange fluctuations[59] - Estimated fluctuations in distributor inventories are provided to understand performance trends, particularly in the U.S. market, which operates under a three-tier distribution system[60] - The company aggregates markets by economic development stage and brands by beverage alcohol category to explain operational results and highlight trends[61] Production Changes - In fiscal 2024, production of Jack Daniel's Country Cocktails fully transitioned to Pabst Brewing Company, removing non-comparable operating activity from the first and second quarters of fiscal 2024 and fiscal 2025[55]